A good financial plan is the one that reduces uncertainties in reaching financial goals by providing adequate cover for health contingencies.
The Covid-19 pandemic has made it clear that not only the senior citizens, but also the young people are vulnerable to getting sick. Not only Covid, but the vector borne disease Dengue also causes more fatalities in the younger generation than the older one.
So, no one can predict when one may get ill and need hospitalisation that needs huge expenses. Moreover, once a person is detected with some disease that needs hospitalisation, no insurance company would provide the person an insurance cover especially for illnesses related to that disease.
So, to protect the savings and to avoid financial strain, one should get a cover against the medical expenses related to hospitalisation.
A good financial plan is the one that reduces uncertainties in reaching financial goals and provides adequate cover for health contingencies.
But to cover your health contingencies, what should you do – create a contingency fund, depend on corporate health cover and/or take an individual health insurance cover?
Let’s compare the benefit and limitations of contingency fund, corporate cover and individual health insurance:
For unforeseen emergencies, one should have some cash readily available. This may be done by keeping some cash at home, some in savings bank account and some in breakable FDs or in liquid funds.
But one can’t estimate when the person himself/herself or his/her family member(s) will get sick, what would be the cost of hospitalisation and how recurring will be the need of hospitalisations.
So, creating a contingency fund is essential, but due to many uncertainties related to illness and hospitalisation needs, one can’t depend only on contingency funds for health expenses.
Corporate Health Cover
It has become a common practice for the corporates to provide a minimal group health insurance cover to their employees. However, to avail additional cover, an employee needs to pay for the extra cover.
As the corporates have bargaining power, such corporate covers are generally able to provide higher benefits compared to an individual health cover.
However, the free corporate cover may be less than sufficient and more importantly, the cover will cease as soon as an employee leaves the organisation after retirement or for another job.
As the chances of getting ill increases with age, it will not only be difficult for a retired employee to get a holistic health cover after retirement due to his/her age, but may also become ineligible to get a cover in case he/she already starts suffering from some diseases.
So, one may enjoy the health cover provided by the employer, but should never solely depend on it and get an individual health insurance cover without waiting for the onset of some diseases.
Individual Health Insurance
Getting an individual health insurance cover is must everyone – especially if there is no other lifelong cover like Central Government Health Scheme etc – even if one has a contingency fund and corporate health cover already in place.
This is because a contingency fund may get exhausted in one or two hospitalisations and a corporate cover will cease once you leave the organisation, but you will be eligible to avail the benefits of an individual health insurance cover repeatedly by renewing the policy lifelong.
As there is no specific age of becoming ill, it’s better to take an individual health insurance cover at an early age.
One may argue that the chances of getting ill is lower at lower age, so why should a person pay a premium without an apparent need of hospitalisation very soon.
Apart from the fact that there is no certain age for sure that a person will not become ill, the other benefits of getting an individual cover early are –
Tax Benefits: Taxpayers get tax benefits on health insurance premium u/s 80D of the Income Tax Act. The limit of tax deduction u/s 80D currently is Rs 25,000 for self and family for individuals below 60 years of age.
No Claim Bonus: Many insurance companies provides enhanced cover up to the basic sum insured as no claim bonus for each claim free years. So, in case 10 per cent no claim bonus is provided for each claim free year on an individual health insurance product, the cover will get doubled if there is no claim for 10 years.
For a Noble Cause: Insurance claims are paid from the insurance pool created by the premium paid by the policyholders. So, if you take an individual health insurance cover at an early age without an apparent cause of hospitalisation soon, you would be doing a charity by paying premium. This is because the premium paid by you would be utilised to settle the claim of another policyholder who need hospitalisation, thereby indirectly helping the person.
Unless young people also take insurance cover, the amount of health insurance premium would become very high, as a limited number of people would contribute to the insurance pool, while the number of claims would remain the same.