Sunday, October 14, 2012

Health Care Insurance--Are you Covered for Your Retirement?

Financial Planners and advisers advocate buying insurance coverage—be it health and term—at the beginning of the career so as to lock in at a low premium. We will restrict the scope of this article to health care policy only.

But one point that is missed out or mostly overlooked—especially by the investor/insured is whether the cover that they acquire now will remain relevant in their twilight years? This coupled with the tendency of the insured to abhor high coverage in the initial years (and even later in life) usually exposes them to insufficient medical coverage.

The young people who do buy health cover and/or term plans usually slip into a sense of misplaced complacency by thinking that they have (sufficient) cover to talk about—lasting even in their retirement years.

No doubt the policy taken today will be sufficient for next 3-5 years. Whether the cover will be sufficient beyond that is debatable---because of health cost inflation. Beyond this initial shelf life of say 5 years, the fate of my health care will be in the hands of the insurance company and my financial position.(Since after the first 5 years of the job, liabilities also increase on account of marriage/home loans and other obligations). To bring home the point, say a 30 year old person takes a health cover of Rs. 3 lacs today. Assuming he retires at the age of 65 and health care inflation averages 10% p.a., his health cover requirement at the retirement will be Rs. 84.30 lacs.

Presently health care insurance is bought on under mentioned considerations:-
  • Health care insurance is one which is required mostly in post-retirement years. Hence, it’s a truly long term investment spanning over 30-35 years without any tangible returns/benefits
  • It’s a common knowledge that hospitalization costs are increasing. With the state of government hospitals in a pitiable condition presently, without any scope for its drastic improvement in foreseeable future, hospitalization expenses may become unaffordable for a common man.
So the point to ponder is how much health insurance is sufficient to financially support you and your loved ones, so that you may have a peaceful retirement life?

The answer lies in following points:-

Costs of common surgeries and hospitalization costs in India

Medimanage Research team ( has come out with a research on comparative costs of select surgeries between 2007 and 2012. The findings are as under:-

Sl. No.
% age increase


Coronary Artery Bypass Graft (CAGB)
Gall Bladder removal
Prostrate Surgery
Angioplasty (with 2 stents)
(Source: -

It is evident from above that healthcare costs have increased by 10% on an average per year. We at AIMS believe that with rising prosperity, demand for good healthcare facility will only increase at an increasing rate. Absence of government aided health care facility coupled with few good modern healthcare centers/hospitals slated to come up in near future, there will be an upward bias on healthcare costs for time to come.

Future Costs

Let’s see how healthcare inflation can blow a hole in your finances at retirement. A healthcare insurance of Rs. 4 lacs today, @ 12% inflation, you will need a sum insured of Rs. 12 lacs per member. In 20 years at say 5% inflation you will need to insure yourself for nearly Rs.20 lacs. For calculation of floater coverage assuming 50% adhoc coverage for every adult member and 10% for every child, you will need the following coverage:-

50% additional
10% additional
10% additional
Self-+Spouse+1 Kid
12 lacs
18 lacs
19 lacs
20 lacs
20 lacs
30 lacs
32 lacs
34 lacs
33 lacs
50 lacs
53 lacs
56 lacs

A middle class person would either have to “afford”, “plan” or “pray” to afford health coverage of Rs. 50 lacs+ for his post retirement years.

Is there a solution to as to “afford” or “plan” health insurance available? (Alas, we do not have any solution for “pray” except but to pray).    If there is a problem, there ought to be a solution also. Solution lies in following steps:-   
  • Healthy Living: - Healthy living is the 1st.step to your health insurance. Healthy living involves regular exercise, a proper diet plan, and avoiding ill-habits. A lifestyle covering all the aforementioned habits today is a sure way to avoid high hospital bills in future. (Read Physical Fitness for Financial Health)
  • Buy Health Insurance (re-imbursement) along with a critical illness plan (replacement). HDFC SLI Critical Care Plan is an example of the latter type of cover that we strongly recommend to our clients to supplement traditional mediclaim insurance (re-imbursement) 
  • Plan a healthcare contingency fund by way of SIP in Mutual Fund 
The following is approximate outgo for an individual aged 30 years to insulate himself & his 
family members from medical expenditures:-

Type of Plan
Sum Insured
Costs p.a.
6,000 (approx.)
Critical Care Plan
Health Care Contingency Plan
24,000 (approx.)

It is said that health is wealth. So why not insure your wealth by insuring your health. After all, you will be able to enjoy your retirement only if you are healthy (wealthy & wise). 

So to be healthy and wealthy during your retirement, be wise today.(Read :- Health Insurance--a necessity)

Thursday, October 11, 2012

Time to invest in Long Term Bond Funds

It’s time to take an exposure to long term bond funds.

RBI (Reserve Bank of India) had during its monetary policy review 17/09/2012, had spelt out clearly that high interest rate regime cannot be reversed unless government takes policy initiatives to control inflation and fiscal deficit as controlling inflation was it’s (RBI) prime concern.

Thereafter government announced big bang reforms (Reforms Part II). It is now expected that RBI will start reducing interest rates. A token reduction in interest rate is expected in monetary policy review in late October 2012. October will spell out the thought process at RBI as regards interest rates.
We believe that it is now time to take an exposure to bond funds with a 12-15 month investment horizon.

Some of the steps taken by RBI which supports our bullish view on bond funds are as under:-

   The borrowing calendar of Government of India for second half of 2012-2013 was announced on 8/10/2012. There has been no change in the calendar as compared to the original estimate made at the beginning of the year. The government will borrows. 2 lac crores between October to March 2013.

RBI will conduct OMO (Open market operation) during this period. This we believe will set the tone for reduction in interest rates.

After the announcement of reforms measures by the Government, finance minister has announced his resolve to contain/trim the fiscal deficit and work towards subsidy rationalization. Fuel price hikes is a step in that direction.  These announcements followed by some concrete action by the government, will prod RBI to start reducing rates with a token reduction coming during the October monetary policy review meeting.

Economists said the sharp increase in diesel prices and the cap on subsidized cooking gas cylinders has sent out a strong signal that the government is keen to clear the fiscal mess. Several economists said that the bold government moves provides enough elbow room for the central bank to change its hawkish stance.

There have been arguments that there is little scope for rate reduction as long as inflation remains high. However, as said earlier, with announcement of reforms and prep talks by FM, the argument now is not about whether RBI will hike or cut rates, there is a talk about when and how much will RBI cut rates. Even in a worst case scenario, investors in bond funds may only have a longer waiting period before rate cuts become a reality. Recent events have only improved chances of RBI starting rate cuts starting October –December 2012 quarter.

Disclaimer: - The views expressed are personal views of the writer. This is not a recommendation to buy/subscribe to bond funds. Mutual fund investments are subject to market risks. Please use your own judgment/discretion or consult your financial advisor.