Financial planning is all about goal setting, savings, corpus, timely evaluation of portfolio performance, etc. At least, that is what we believe it to be. In other words, financial planning is all about making things work in a particular direction. However, we often fail to acknowledge that addressing any deterrents that can derail your financial plan is also a part of the financial planning process. For example, the single most significant threat to anyone’s financial journey is the arrival of the unexpected medical expense. To protect against such a contingency must be a part of the financial planning exercise. Therefore, we believe health insurance relates to financial planning like any other aspect.
A brief about what is a Mediclaim policy?
A Mediclaim policy is insurance against the medical expenses incurred on hospitalization or treatment of a medical situation. The Mediclaim policy usually covers for:
- Hospitalization expenses
- Treatment costs of critical illnesses
- Medical costs incurred a specified number of days before and after the hospitalization
- Day-care treatments (e.g. cataract operation, chemotherapy, etc.)
Add-on benefits (aka riders) are available, covering medical costs incurred for maternity, pre-existing diseases, accidents, etc. However, these riders come with an additional cost.
There are six major types of health insurance policies:
- Individual policy
- Family floater
- Senior citizens policy
- Critical illness cover
- Group Mediclaim insurance
- Overseas Mediclaim policy
The Mediclaim policy, like most other insurance policies, is for a defined period, usually one year and is renewable. Also, we encourage you to read about the Mediclaim policy in one of our previous articles.
Medical treatments are increasingly expensive
Technological advancements in medical sciences are progressing steadily. Each day is better. This enhanced know-how leads to improved treatment and higher survival rates of even life-threatening diseases. However, the flip side is the rising cost of medicines.
As per research, the treatment cost for top ailments has increased by 10-15% during the last five to seven years. Another study shows that two out of five families, a member of which underwent cancer treatment, had to borrow money or sell assets to complete the treatment. Similarly, in-vitro fertilization is a routine treatment. However, despite its commonality, the treatment is quite expensive. Further, any major organ transplant (e.g. liver, lung, pancreas, kidney, etc.) can cost about Rs15 Lakhs. These may not even fully cover the costs one incurs to take care post-surgery. Even simple lifestyle-related surgeries, life knee replacement, hip replacement can cost anywhere between Rs 4-7 lakhs.
In other words, there are two sides to any coin. On the one hand, technological advancements in medical sciences help patients get the right cure. On the other hand, however, high costs create a dent in the pocket and leave a deep cut if uninsured.
The importance of health insurance in financial planning
With the above backdrop, there are some apparent advantages of health insurance in financial planning. Those are:
Medical exigencies
Any difficult medical situation may arise unannounced. Therefore, it is highly advisable to opt for a health insurance policy that best suits your requirements. Such a policy will help you sail through difficult times.
There is an option of cashless hospitalization, in which case the insurance company pays the medical bills. Thus, the insured does not have to pay cash at the time of discharge from the hospital. Alternatively, the expenses borne by the policyholder can get reimbursed subsequently in case the cashless facility does not work.
There is no scientific method to derive the required sum assured. However, theoretically, it can be calculated as lower of the two – (a) 50% of primarily member’s annual salary or (b) total cost of treatment of one acute disease (heart bypass surgery or similar) at a hospital of your choice.
Most experts suggest minimum health insurance of Rs 5 Lakhs. The sum assured should then be modified based on your requirements and affordability. A family floater policy is a good option, along with some of the essential riders.
Take due care of health
Sounds hygiene? Still, many of us do not pay heed unless pushed.
Therefore, it is essential to visit a doctor for an annual check-up. Many health insurance plans do allow for reimbursement of costs for such check-ups. The taxpayer can also claim a deduction of Rs5,000 for a preventive health check-up from taxable income.
Tax advantageous
An individual (or HUF) can claim a deduction of up to Rs25,000 per annum paid as a premium for medical insurance. The insurance policy can be for self, spouse and dependent children.
An additional deduction of up to Rs25,000 is available if the premium is for parents less than 60 years of age. The deduction amount is Rs 50,000 for parents aged above 60years.
Above all, if the taxpayer and parents are above 60years of age, the deduction amount is capped to Rs 1,00,000.
Post-retirement shield
After the active income years of life, the sources of income are limited. Therefore, you want to use the savings to pursue dreams and fulfil social obligations.
To freely enjoy the time, it is essential to leave behind worries, especially the costlier ones. Therefore, you must plan for any medical emergency through proper insurance.
Protection against rising medical inflation
We briefly described above, the cost of medical treatments is on the rise. Moreover, a sedentary lifestyle leaves us prone to diseases more than ever. Subscribing to health insurance helps you manage the standard of living without sustaining a toll on your finances if a need arises.
Health insurance relates to financial planning; it is integral
Advancement in the medical sciences has improved life expectancy and made the next generation of medical treatments available in India. However, although health technology and awareness has leapt forward, health in itself has deteriorated due to multiple reasons.
Firstly, changing lifestyles makes people more vulnerable to new-age diseases. Secondly, an increase in urbanization and nuclear family structure has led to higher stress levels. Thirdly, people lead an extremely sedentary lifestyle, which is unhealthy. And finally, mental disorders due to external factors (and lack of emotional and physical support) has increased manifold.
Therefore, although we believe life longevity has improved, people are not living as healthy as they should. And needless to say, all these factors lead to a higher medical cost burden.
We invest the surplus in maintaining the economic value of money, and we attempt to gain more than inflation. Here, health insurance is the desired protection against the rising medical costs and hence a necessary investment.
Finally, health insurance is a regular affair and not a one-time investment. The returns are in the form of protection against any unplanned medical expense. You must maintain an adequate and valid medical cover throughout your lifetime.
Stay insured!
About the author
The author is a senior finance professional with over fifteen years of work experience in corporate finance. He has an affinity for matters relating to personal finance and investment management. Through his writing, the author wants to share his knowledge and understanding of the subject.
Please leave your comment or share thoughts on this article via email at decodefinance.in@gmail.com. For more articles, please visit the website www.decodefinance.in.
Disclaimer
The author has used his knowledge, experience, and understanding of the subject and has exercised extreme caution to avoid possible mistakes. However, the author does not take any responsibility for any error that exists.
Any views, opinions, and thoughts mentioned in the article belong solely to the author and not necessarily to the author’s employer (past or current), organization, committee, or other group or individual.
Under any circumstances, the author shall not be liable for any views or analysis expressed in this note. Further, the opinions expressed are not binding on any authority or Court. We advise readers to consult their financial advisor for assistance in their specific case.
