Health Insurance--A Necessity

Watched Satyamev Jayate episode on state of healthcare in India today (27/05/2012). One of the issues which attracted lot of sound bites was high cost incurred on medical treatment today. One study estimates demand for healthcare to be increasing at a rate of 25% a year. This demand coupled with growing middle class and rise in cost of medical treatment raises the costs of medical treatment even further.

With a rise in lifestyle diseases and high healthcare costs, lack of adequate health insurance coverage can severely impact not only your finances, but can also derail achievement of your financial goals.

However, it is sad that the concept of adequate health insurance is still missing in India. Cost of medical insurance is usually treated as sunk costs and hence low priority is accorded to it. Further we usually do not want to believe that we will be facing a medical emergency ever—until we face it.

The most popular personal medical insurance—Mediclaim-- are-imbursement medical insurance policy offered by private & public sector insurance companies. While the maximum coverage offered by public sector mediclaim insurance companies is Rs. 5 lacs, private companies offer a higher coverage.  Health insurance is a hospitalization cover where the actual medical expenses are reimbursed subject to overall limits as set by companies. This is termed as individual health insurance.

Where the entire family is covered under a single insurance policy is called Family Floater Policy. The logic of such a policy—which is cheaper than individual cover-- is that all the family members are less likely to fall sick together. This results in higher coverage for the family member who may need the coverage in any eventuality.

Another type of medical insurance (it is a rider benefit) which is available is called Critical Care Insurance. This is a replacement type of insurance rather than re-imbursement. Under such a policy the entire sum assured is paid on diagnosis of a specified disease---irrespective of actual expenses incurred. Critical illness like

·         Kidney Failure

·         Cancer

·         Stroke

·         Heart Attack

·         Major organ transplant (as a recipient)

·         Coronary Artery Bypass Graft Surgery

The above is not exhaustive and the list of critical illness may vary from company to company.

For salaried individuals, where employer normally subscribes to a group insurance plan for the benefit of employees, and non-salaried people the critical care policies—if subscribed by them-- can be a blessing in disguise. In such cases, while mediclaim takes care of actual medical expenses, payment of the guaranteed sum assured ensures that the family finances are not disturbed and the person can meet his life’s goals.

However, one of the basic flaws in medical insurance policies is that your cover mostly expires at age 65—the period when you are most likely to fall ill.

So does it mean that post retirement, meeting medical expenses should be left to chance, or should it be met out of your retirement fund?

The answer is big no! You can make your own health insurance by investing a small sum every month till you retire. (Goal based planning)The fund so accumulated can fund your medical treatment even when you do not have the security of medical insurance. For example if you invest Rs. 1000 per month(less than the cost of a movie at multiplex) in a Monthly Income Plan(MIP) of a mutual fund religiously for say 40 years (typical working life) @ 8%, then you would have accumulated close to Rs.35,14,280—a decent fund to meet medical exigencies.

Medical emergencies do not announce their arrival. Make sure you are prepared for it--TODAY!