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Financial planning 5. Having Health insurance plans

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Another key ingredient of your financial plan would be to have adequate health cover in place for yourself and your family. Not having adequate health protection can tumble your family budget in case anyone in your family suffers a major illness. Today we can get all the advanced treatment in multi-speciality hospitals. But, to bear the cost from your pocket is going to leave a big hole- you may have to break many of your monthly investments ,  already invested funds thereby delaying your other financial goals in the process.

It’s a contract – Since insurance is a contract, only persons above the age of 18 will get individual insurance . Persons below the 18 years are considered minors and will have to be clubbed on a family floater plan or to a primary insured person to get insurance

There are two types of health policies –

  • Individual policy ( covers one person above the age of 18 years )
  • Family floaters ( covers many members in the family including children )

Indemnity vs lump sum polices:

Broadly, there are two types of policies – policies that reimburse ( or provide cashless facility ) the actual expenses incurred for treatment ( called indemnity based policies ) and policies that pay a lumpsum the moment you are diagnosed with an illness irrespective of the amount incurred for treatment.

Lumpsum policies fall into two categories –

  • Hospital cash benefit policy – where you will be paid a specified sum (say Rs 5000 per day) for the number of days you are admitted in the hospital.
  • Critical illness policies – polices that pay a huge sum – (say 10 lakhs or 50 lakhs) the moment you are diagnosed with a critical illness – like cancer , stroke , kidney failure etc..

Buy it before you turn 40

Age 40 is one critical milestone after which premiums shoot up drastically. Hence always buy health insurance as early as possible. We would recommend buying insurance before the age of 35.

Health cover by employer:

Some of you may have health insurance provided by employers. The disadvantage is that once your employment ceases, the health protection also comes to an end unless the employer also provides health protection to retired employees through some group schemes. So it is always advisable to have personal health insurance subscribed. Personal health insurance are now renewable for life time according to IRDA rules.

Health cover for family:

Not only for yourself, your family should also be protected against the high cost of treatment. All the insurance companies provide health protection plans combining all the family members – generally called family floater plan – in which a specified sum (say 3 lakhs or 5 lakhs depending on how much you have subscribed) can be used by any one or more of the family members in a year. Normally family is defined as yourself , spouse and children.

Health protection cover for parents:

One of the major challenges is to provide health protection cover to the parents – if they do not have it. Insurance companies will give health protection plans to your parents but the premiums charged will be high since they expect more hospitalization expenses.

One way to reduce the cost of insurance cover is to join any of the group insurance schemes which is provided as part of being associated with certain financial institutions. For example , certain banks provide insurance to its account holders. Example of one such scheme is Punjab national bank. PNB provides insurance to all its account holders by associating with oriental insurance company for an annual premium of Rs 7300/- for 5 lakhs.

Health protection for children:

New born children can get personal health insurance for a very low cost from the 3rd month. Generally, the premiums charged for children are much less than that charged for elders. In fact as the age moves up, the premium charged will also move up. The assumption is that as we get aged, the risk of being hospitalised is more.

Basic Factors to look for in a health insurance plan:

Go for a basic health protection plan:  As you explore the market for health plans , you’ll see that insurance companies provide a variety of health plans. Most of the features that you get for additional premium may look good in papers but in our opinion it would be better to go for a basic health insurance plan. Most of the additional features may not be of use practically.

Waiting period: every insurance policy will have this clause.  This is the time you have to wait before making your first claim. Waiting period will differ from policy to policy. Different ailments will have different waiting periods specified. There will be waiting period for pre-existing ailments (ailments you already have while subscribing for health plans) and there will be waiting period for specific ailments – for example some major illness may not be covered from day one. For example knee joint surgery.

Sub limits: Some policies come with a lot of sub limits. Ie , the policy will contain additional clauses as to how much they would pay for room rent , surgeons fee , ICU rent etc. cheaper polices may contain more such clauses and hence you have to be very careful with this clause.

Tax benefits– the premium you pay is deductible under section 80D of the income tax act. Presently the act provides deduction as shown below:

Tax benefits
Health insurance premium paid for Self, Spouse or dependent children Rs 25,000
If in the above, anyone is a senior citizen Rs 30,000
Health Insurance premium paid for parents Rs 30,000

So in short , if you pay for your family’s insurance and for your parents  , you can claim a maximum deduction of Rs 55,000 or Rs 60,000 depending on the age group.

Group insurance is not enough – insurance provided by employers and organizations fall under group polices and that’s not adequate for health protection from the individual’s point of view. It may offer a cheaper cost option but can stop anytime – either when the organization decided to stop or when you decide not to be associated with the organization anymore.

Cheapest may not be the best – “low premiums” is one way of marketing this product. Hence always remember that when the premium is low – it should also come with a lot of additional terms and conditions. It’s always useful to read insurance reviews or take the help of inline insurance sellers before choosing one.

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