Health insurance costs rising? Here’s what happens if you reduce your base cover

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Health insurance is a long-term financial commitment, and premiums may be burdensome, especially when you get older or when the renewal rate increases. The majority of policyholders query whether they could simply reduce the base sum insured – the core quantum of protection under the policy – to reduce their premium costs. The response isn't a straightforward yes and no, since insurers maintain some guidelines on this alteration.

What the base sum insured means

The base sum insured is the insured amount your insurer will pay for hospitalization and other admissible expenses during a policy term. Suppose, if your basic cover is ₹10 lakh, that is the maximum your insurer will pay before add-ons like top-ups or super top-ups kick in. It's the foundation of your health coverage, and when you cut it, you face direct implications on the coverage you have.

Can you reduce the sum insured?

Most Indian insurers can reduce the sum insured, but this must be done at policy renewal and not in the course of the policy. You would need to make a formal application for the reduction when you get your renewal notice. Insurers impose some restrictions, though. Some will not allow reducing the cover below a certain level, while others will impose a waiting period on diseases following the downgrade.

Why insurers are hesitant

Health insurers frown upon repeated diminution in the sum insured because it has the potential to affect the risk pool. Too many customers downgrading when healthy and upgrading only when ill leads to adverse selection. Thus, insurers impose limits such as limiting reduction to one-off only, or demanding medical underwriting even for lower cover.

Things to consider before reducing cover

Lowering your base cover might save money in the short run, but it can backfire during a medical emergency. Rising hospital costs mean a ₹3–5 lakh cover may no longer be enough in metro cities. Instead of cutting down the base cover, experts suggest maintaining at least ₹5–10 lakh of core protection and using top-up or super top-up plans to manage costs effectively. They provide high coverage at lower premium but have the base sum insured remain the same.

FAQs

1. Will reducing my base sum insured decrease my premium immediately?

Yes, but at renewal only. The next policy year premium will reflect the reduced, smaller coverage.

2. Can I increase my sum insured further subsequently if I reduce it today?

Insurers may approve increases but you could be required to undergo new medical underwriting. Pre-existing disease waiting periods can also reinstates, thereby downgrading then upgrading costing you in the long run.

3. Is there another option better than reducing the base cover?

Instead of slashing the base cover, consider switching to a higher-deductible plan or buying a top-up policy. Both options save on premiums but preserve outstanding protection against huge medical bills.