Quick Summary
Choosing the right sum insured for a group health insurance plan ensures your employees get adequate financial protection against rising medical costs, while helping HR teams maintain a sustainable group health insurance policy.
Why choosing the right sum insured matters?
Healthcare inflation in India is rising at nearly 10-15% every year, making hospitalization and treatment costs more expensive than ever. If your group health insurance cover is too low, employees may end up paying out-of-pocket during emergencies, leading to dissatisfaction, stress, and even higher attrition.
On the other hand, choosing a sum insured that is too high can push premiums beyond what your company’s budget can support, especially for startups and small businesses. Striking the right balance is essential.
Read our blog- https://www.pazcare.com/blog/what-hrs-should-look-for-in-group-health-insurance
What is sum insured in a group health insurance plan?
The sum insured is the maximum amount the insurer will reimburse for medical expenses in a policy year. It applies per employee or per family, depending on your group health insurance plan structure. It forms the foundation of your group health insurance policy because:
- It determines how much financial protection employees receive.
- It directly influences the policy premium.
- It impacts claim approvals, employee satisfaction, and benefits utilization.
Factors HR must consider while calculating the right sum insured
1. Team demographics
- Age distribution (young team vs senior workforce).
- Number of dependents (spouse, children, parents).
- Medical history trends: A younger workforce may need lower coverage, while family-heavy or older teams need higher group health insurance cover.
2. Location-based medical costs
Healthcare costs vary significantly:
- Metro cities like Bangalore, Delhi, and Mumbai have higher room rents, surgery costs, and ICU charges.
- Non-metro cities generally have 20-40% lower hospitalization expenses
Your city directly affects the ideal sum insured.
3. Type of employees to be covered
- Employee-only coverage
- Employee + spouse
- Employee + spouse + children
- Employee + parents
4. Average hospitalization costs in India
- Normal delivery: ₹40,000–₹1,00,000
- Appendectomy: ₹50,000–₹1,50,000
- Knee surgery: ₹1.5–₹3 lakh
- Cardiac surgery: ₹3–6 lakh
5. Industry type and risk level
- Low-risk: IT, consulting, SaaS – lower claims frequency.
- High-risk: manufacturing, logistics, construction – higher chances of accidents and injuries.
6. Company size and budget
Startups and SMEs look for cost-effective plans, while mid-sized and large enterprises need higher limits to accommodate diverse employee needs.
How to calculate the ideal sum insured?
Benchmark recommendations for Indian companies
Data points HRs must collect
- Past claims data (last 2–3 years)
- Average claim size
- Claim frequency
- Most common hospitalization categories
- Treatment cost trends in the company’s city
- Employee demographic data
Example: If the average hospitalization cost in your city is ₹60,000-₹80,000 and most employees opt for family coverage, a minimum sum insured of ₹5 lakh is appropriate. If parents are included, the ideal range increases to ₹7-10 lakh.
Sum insured recommendations for different company sizes
Group health insurance for startups
- Recommended: ₹3-5 lakh.
- Keep coverage simple and essential.
- Allow optional buy-ups for employees who want higher protection.
Group health insurance for small businesses
- Recommended: ₹4-6 lakh.
- Balance cost and coverage.
- Add maternity cover and wellness benefits if budget allows.
Group health insurance for mid-size & large companies
- Recommended: ₹5-10 lakh.
- Use claim data to fine-tune the sum insured.
- Include top-ups, critical illness add-ons, and parental coverage if needed.
Add-ons that increase coverage without increasing the sum insured
- Maternity cover
- OPD/doctor consultation coverage
- Critical illness rider
- Telemedicine and wellness programs
- Dental and vision care
Mistakes HRs should avoid when choosing sum insured
- Choosing the lowest sum insured only to reduce premiums.
- Using the same sum insured for all employee categories.
- Ignoring dependent coverage needs.
- Not reviewing claims data every year.
- Not adjusting coverage based on city, medical inflation, or workforce changes.
How Pazcare helps HRs choose the right sum insured
1. Data-driven recommendations
Get benchmarking reports based on industry, location, team size, and claims history.
2. Claims insights
Understand past claims trends and projected risks to pick the right sum insured.
3. Custom plans for startups and SMEs
Affordable group health insurance for small businesses and early-stage teams.
4. Expert advisory team
Personalized guidance to help you find the best group health insurance policy in India for your team.
Conclusion
Choosing the right sum insured shapes the effectiveness of your group health insurance policy. When done correctly, it protects your employees, controls costs, and strengthens your benefits strategy.
Talk to our benefits experts to set the right coverage for your team
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