The need for financial planning has been well documented in recent times. One needs to plan in order to effectively move towards future goals of savings or retirement, make the most of their financial resources, manage taxes and most importantly, prepare for unexpected emergencies. While preparing for such emergencies, the most obvious consideration is that of untimely death and term insurance (pure protection) plans in order to cope with that eventuality financially. The other, less considered eventuality is that of not dying, but facing a terminal illness. While it seems a less scary scenario than death at face value, the financial implications may narrate quite a different story. Costly medical bills, the need for hospitalisation or home care, the need to provide financial security for surviving family members and the fact that you may not be around for too long can have a profound impact on the your family’s lifestyle and peace of mind. The other factor that compounds problems is the rising costs of healthcare and the rising incidence of such illnesses. For example, Herceptin, an effective drug for breast cancer treatment costs around Rs 75,000 to Rs 1 lakh a vial and patients generally require anywhere between 6 to 17 vials for treatment. In the absence of appropriate insurance cover, one will need to pay such expenses out of their own pocket and deplete their savings substantially, if not totally. According to a recent report, 78 per cent of India’s healthcare expenditure comes from the patient’s pockets and the World Bank estimated that 2.2 per cent of the country’s population is forced into poverty every year due to medical costs of critical illnesses.
The financial planning required for encountering these circumstances needs to be sound. There are many interrelated areas that need to be managed, one of prime importance being health insurance. The conventionally bought indemnity plan (or group employee covers) mostly pay hospitalisation bills but come up short when it comes to other incidental expenses and will not be able to compensate for the loss of income during the period of treatment or in case you are disabled in some way due to an illness. For comprehensive cover against such exigencies, one should consider critical illness, surgical benefit plans or riders. These plans pay a lump-sum tax-free benefit in case one is diagnosed with one of the illnesses that are covered by the policy. Such lump-sum payouts can be utilised to pay off debts, mortgages or compensate for the loss of income that one faces during the 3-6 months required for treatment and recovery. There are plans in the market which specifically consider the loss of income and pay an income benefit on diagnosis of a covered illness or on disabilities resulting from them. The resulting benefit that these plans offer is that one does not have to dip into his existing savings and hamper his financial planning for future financial goals like children’s education.
The next step in the process of being future-ready is the purchase of an appropriate policy. While going for a policy, one should keep a few things in mind.
–A major parameter would be the number of illnesses that are covered and those that are excluded. It is always suggested to read the fine print in your policy document as a little time invested in the right way goes a long way in saving you from the hassles when it comes to making claims.
–The other main parameters to be compared would include the survival period, the cover for pre-existing diseases and the claim settlement history of the insurer. While constructing the health insurance portfolio, one should keep in mind that the purpose of a critical illness or surgical cover is paying for expensive treatments and conventionally, it is cheaper than an indemnity plan.
–One should look for a good balance between comprehensive indemnity plans and critical illness or surgical benefit plans to find the right mix of coverage and cost. As a reference mix for middle class households, a Rs 5 lakh indemnity cover coupled with a Rs 10-15 lakh critical illness/surgical cover is a good benchmark mix. Fixed benefit health policies can be purchased from both life and general insurers. The major difference lies in the fact that life insurers offer policies with much longer tenures.
Apart from health insurance, while planning for the possibility of terminal illnesses, one also needs to address the following areas:
Legal will and power of attorneys – An up-to-date will is of utmost importance to ensure that your assets are distributed according to your own wishes. A medical and financial power of attorney should also be put in place to ensure you have identified individuals to take decisions on your behalf in case you are incapacitated
Asset structuring – Over one’s lifetime, there are multiple bank, investment and retirement accounts that are utilised. These accounts should be consolidated at one place with the help of a financial planner. In terms of investments, they should be re-evaluated looking at the risk appetite of the individual in case he is diagnosed with a critical illness. Beneficiaries for inheritance of assets also need to be clearly outlined to avoid any future conflicts
Estate planning – The estate plan will effectively puts together all the aspects mentioned above. The estate plan will ensure that your wishes regarding your assets materialise for the benefit of your beneficiaries.
These aspects of financial planning should not be postponed till the time one is actually diagnosed with a terminal illness since one will not be able to get any financial cover at that time. Planning for terminal illness should begin early since it ensures that you purchase policies with lower premium and have your savings towards your financial goals protected. The best way to ensure that you are always prepared for life’s eventualities is to constantly review the insurance portfolio and have all financial documentation in an updated order.
The author is vice-president – products, HDFC Life. Views expressed here are personal.