How Much of My Salary Should Go Into Health Insurance?

4 min read | Updated on June 03, 2025, 13:11 IST

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One hospital visit can wipe out months—if not years—of careful saving. That’s a harsh reality many Indians have faced too often without warning. Arti's father’s unexpected surgery cost them over ₹5 lakhs, with insurance covering only half; the rest had to come from their emergency fund, which took two years to rebuild.

Keep in mind that health insurance isn't just a policy; it's protection for your peace of mind. Yet many of us still treat it like an optional add-on. The truth is, no budget is complete without factoring in your health. So you need to be prepared regarding how much of your salary should go toward health insurance, looking at rule-of-thumb percentages, how age and family size affect needs, and budgeting strategies to keep you protected—without breaking the bank.

Why Health Insurance Is a Salary Essential, Not an Extra

Medical inflation in India is rising at an alarming rate: over 14% annually. That means a surgery or hospitalisation that costs ₹2 lakhs today could cost ₹3.5 lakhs just a few years from now. If you think your corporate health plan is enough, think again. Employer-provided policies often cap coverage at ₹2–5 lakhs, and they vanish the moment you switch jobs.

More people are now realising the importance of top-up or personal health insurance plans. Whether it’s a dengue scare in Delhi, a sudden knee surgery in Mumbai, or managing diabetes in your 40s, life throws surprises. Without the right cover, these can lead to loans, dipping into savings, or delaying other life goals like buying a home or funding your child’s education.

Ideal Percentage of Salary to Allocate

So, how much of your income should go into health insurance? A widely accepted guideline is to allocate 1% to 5% of your annual income.
If you’re in your 20s or early 30s, healthy, and single, you can get a decent individual policy by setting aside just 1–2% of your annual salary. That’s like sacrificing a few dinners out each month for long-term peace of mind.
Married? Kids? Aging parents under your care? You’ll need more comprehensive coverage, possibly a family floater plan. 3–5% of your salary is a wise range in such cases.
If your work or lifestyle involves higher risks: say, you travel frequently, work in a hazardous industry, or have hereditary health concerns, consider going even beyond 5%. Think of it as ensuring not just your body, but your entire financial ecosystem.

Factors That Influence How Much You Should Spend

Let’s break down the key factors that determine your ideal insurance budget.

Age and Health Condition

Younger policyholders enjoy lower premiums and broader policy options. If you're in your 20s with no existing conditions, your health insurance may cost you less than a gym membership.

However, with age or pre-existing illnesses like hypertension or diabetes, premiums go up. You might also need add-ons like critical illness cover. Starting early helps you lock in lower rates.

Family Size and Dependents

If you’re buying a policy just for yourself, it’s straightforward. But add a spouse, kids, or elderly parents, and your needs multiply. A family floater plan is cost-effective but needs a higher budget, after all, more people mean more potential claims.

City of Residence and Hospital Network

Healthcare in metros like Mumbai, Delhi, or Bangalore is significantly more expensive than in smaller towns. Premiums often reflect this. Ensure your plan includes hospitals in your city, especially those you trust.

Employer Coverage

Many companies offer health insurance, but is it enough? If your employer's policy only covers ₹3 lakhs and doesn’t include your parents or spouse, you’re underinsured. A top-up policy or separate family floater is a smart move.

Recommended Monthly Budgeting Approach

One easy way to approach this is by adapting the 50:30:20 rule of budgeting, where 50% of your income goes to “needs,” 30% to “wants,” and 20% to savings. Your health insurance premium should sit comfortably within the “needs” bucket.

For mid-income earners, budgeting around ₹1,000 to ₹3,000 per month on insurance can secure decent individual or family coverage.

You can even treat your health insurance like a SIP, paying monthly premiums automatically to ensure continuity and avoid lapses. Some great online calculators help you choose the right policy size and premium based on your age, location, and dependents.

Common Mistakes to Avoid While Budgeting for Health Insurance

Many of us delay buying insurance, thinking we’re healthy today. That’s like installing seatbelts after you have met with an accident; it makes no sense.

Here are common traps to avoid:

Only relying on employer cover

You might be between jobs or retired someday.

Choosing a low coverage amount (Underinsurance)

Your actual medical bills can easily surpass the limit of ₹2-3 lakhs.

Ignoring waiting periods

Some critical illnesses might need a longer waiting period before the health insurance kicks in.

Choosing the policy with the least premium

Lower premiums could imply exclusions and co-payment clauses.

Conclusion

A thoughtful health insurance plan is not an expense—it’s a financial seatbelt that keeps everything else safe. Review your policy yearly, especially after life changes like marriage, parenthood, or job switches. Upgrade when needed. And most importantly, start today—because health costs won’t wait.

FAQs

How much of my salary should go into health insurance?

1%–5% of your annual income, depending on age, lifestyle, and dependents.

Is employer health insurance enough?

Often not. Consider top-up or personal policies for full coverage.

What is the best age to buy health insurance?

The earlier, the better—premiums are lowest in your 20s.

Should I go for the cheapest premium?

No. Focus on value—coverage, claim process, and hospital network matter more.

Can I pay health insurance premiums monthly?

Yes, many insurers offer monthly payment options like SIPs.

About Author

Upstox Desk

Team of expert writers dedicated to providing insightful and comprehensive coverage on stock markets, economic trends, commodities, business developments, and personal finance. With a passion for delivering valuable information, the team strives to keep readers informed about the latest trends and developments in the financial world.