Sum insured

This guide explains sum insured and its importance in group health insurance, helping HRs choose the right coverage for employees. Learn about individual vs floater sum insured, policy limits, and how to minimize out-of-pocket costs while offering employee benefits.

Sum insured meaning

The sum insured is the maximum amount your health insurance policy will cover for medical expenses in a policy year. Once this limit is crossed, the remaining cost must be paid out-of-pocket.

For HR professionals managing group health insurance, the sum insured determines how much financial protection your employees and their dependents receive during hospitalization or treatment.

For example, if the sum insured is ₹5 lakh per employee, the insurer will cover up to ₹5 lakh of medical bills in one policy year. Any expenses beyond that limit will have to be borne by the employee.

Sum insured meaning in health insurance

In health insurance, the sum insured determines the extent of protection your policy provides. It covers expenses like hospitalization, pre-and post-hospitalization, ambulance charges, day-care procedures, and even AYUSH treatments  but only up to the sum insured amount.

For instance, if your sum insured is ₹5 lakh and you incur a hospitalization bill of ₹4.2 lakh, the insurer will cover the full cost (subject to policy terms). However, if the bill is ₹6 lakh, you’ll have to pay ₹1 lakh from your own pocket.

A policy with a higher sum insured ensures that your employees can access quality healthcare without financial strain. On the other hand, a low sum insured can lead to dissatisfaction when employees face high medical bills not fully covered by insurance.

Types of sum insured

There are two main types of sum insured in health insurance:

1. Individual sum insured

Under this plan, the coverage amount applies to one person only. Each insured member has their own separate sum insured.
Example: If a family of four has individual coverage of ₹5 lakh each, every member can claim up to ₹5 lakh independently.

2. Floater sum insured

In a family floater plan, the sum insured is shared among all family members.
Example: A ₹10 lakh floater sum insured for a family of four means the total coverage is ₹10 lakh usable by any family member or collectively by all.

Floater plans are usually more affordable but may not offer enough coverage if multiple family members fall ill in the same year. For HRs, the choice between individual and floater plans depends on employee demographics, family size, and budget.

To choose the right sum insured for your employees, you can also use our group health insurance premium calculator to estimate premiums and optimize coverage.

How to choose the right sum insured?

When selecting the right sum insured for your employees, consider the following factors:

• Age: Older individuals or those with pre-existing conditions need higher coverage.
• Location: Medical costs in metros like Bengaluru, Mumbai, or Delhi are significantly higher and aim for at least ₹5–10 lakh per employee.
• Medical inflation: Healthcare costs increase by 10–15% annually, so plan for the future.
• Family coverage: If dependents are included, opt for a higher floater sum insured.
• Employee expectations: Comprehensive coverage shows that the company truly cares for its people’s wellbeing.
• Lifestyle and Risk Factors: Stress, sedentary jobs, unhealthy habits increase the likelihood of health issues.

Sum insured vs. Sum assured

Though they sound similar, these terms are used differently across insurance types:

• Sum Insured: Applies to group health and general insurance, it represents the maximum claimable amount for expenses incurred.
• Sum Assured: Applies to group life insurance, it’s the fixed amount paid to the nominee upon the policyholder’s death or at maturity.

In short, sum insured covers “loss”, while sum assured guarantees a “payout.”

Why is sum insured important for employees?

In a group health insurance policy, the sum insured directly impacts employees’ financial protection during medical emergencies. A higher sum insured ensures employees get quality healthcare without worrying about large out-of-pocket expenses.

For employers, choosing an adequate sum insured is crucial to:

• Build a safety net for employees and their families
• Improve satisfaction, retention, and trust
• Demonstrate genuine care for employee wellbeing