How Much Should You Spend on Health Insurance Premiums?

Vote: 1

Undertake a financially sound and responsible approach to budgeting by allocating around 2% to 3% of your annual income towards your health insurance premiums. A common rule of thumb is to ensure your total sum insured is at least 50% of your annual income. For example, a ₹10 lakh cover is considered just right for an annual income of ₹20 lakh.


Learn more about how much you should spend on health insurance premiums while staying financially sensible.


How Much Should You Ideally Spend on Health Insurance Premiums?


Premiums shall vary based on your age, the type of plan you've opted for, the sum insured, and your region of residence. Generally, premiums start at around ₹500–₹2000 each month for basic plans against a ₹5 lakh cover.


For a 30-year-old, a ₹15 lakh individual policy will cost around ₹10,000–₹12,000 annually. On the other hand, premiums for family plans (2 adults and 1 child) can be higher.


Here are tips on figuring out how much you should ideally spend on health insurance premiums:



  1. Resort to the 50:30:20 Rule: Include your premium payment obligation under the ‘needs’ category of your budget (50% of income).



  1. Choose Comprehensive Coverage: Field experts recommend a minimum coverage of ₹5-10 lakh for individuals.



  1. Take Tax Benefits into Account: Under Section 80D of the Income Tax Act, premiums are eligible for significant tax savings.


What are the Budgeting Tips for Health Insurance Premium Payment?


Budgeting for health insurance premiums involves setting aside monthly savings, choosing annual payment options to get the best discounts, selecting family floater plans, etc. Discover in further detail below:



  1. Calculate the Percentage with Reference to Income: You can limit your premiums to 2-3% of your annual income to avoid risking overspending.



  1. Optimal Coverage: Go for a sum insured of at least ₹10-20 lakh across Tier-2 cities; ₹30 lakh or above in Tier-1 cities. Higher premiums apply for metro destinations.



  1. Take the Age Factor into Consideration: Premiums will increase as you age. For instance, at the age of 25, you’ll have to pay ₹8,000–₹10,000 per year. On the other hand, for those aged 60 or above, the amount could exceed ₹30,000.



  1. Consider choosing Family Floater Options: A family floater plan covers 3 members (approximately ₹10 lakh per member). These options generally require premium payments of ₹15,000–₹25,000 each year.



  1. Monthly Budgeting Hacks: Treat the insurance segment as a ‘need’ expense (like you would for an SIP) and break up the premiums to ₹1,000–₹3,000 each month. This can help manage the cash flow over time.


Final Word


Health insurance premiums are determined by risk factors, including your age, current health status, pre-existing conditions, and specific lifestyle choices. Other major drivers include the selected plan type, coverage amount, and location. Purchasing early keeps the premiums lower, while high deductibles may minimise monthly costs.