Why health insurance is important in financial planning

Why one must take health insurance seriously to achieve the best in financial planning.

The need to assess your health risk and hedge the same arises from the fact that the healthcare costs have been rising at more than 20 per cent on an annualised basis.

Also, out-of-the-pocket spending continues to be around 75 per cent of the total medical expenses. Many of these are not even covered by the medical cover that you avail.

Out-of-pocket expenses

Although it is essential for one to avail a health cover, to reduce the risk of financial difficulties in the event of a major illness or hospitalisation, it is also important to build a corpus which will exclusively cater to your out-of-pocket expenses, this essentially means that we need to budget this regularly, the amount that you do not spend can be set aside to build a decent corpus which can be utilised for your post-retirement years' medical expenses (out-of-pocket). Globally, the healthcare segment is undergoing a revolution; the government is focusing on promoting low healthcare plans.

Choosing the right medical cover

A health insurance policy covers the following basic costs in case of hospitalisation due to any accidents/ diseases which doesn't form a part of the permanent exclusions of the policy.

• Room, boarding expenses as provided by the hospital/ nursing home
• Nursing expenses
• Surgeon, anesthetist, medical practitioner, consultants, specialist fees
• Operation theatre charges, surgical appliance, medical and drugs, chemotherapy, radiotherapy and similar expenses

While choosing any vanilla cover -- life or health, the rule is relatively simple: go for the one that gives you a long lasting cover, especially for post-retirement years. Few medical insurance policies such as Apollo Munich, Star Health, Max Bupa provide health insurance cover for life. These are the ones that one should typically opt for, whilst planning for family, one should avail a family floater which will be cost-efficient.

In this the health cover is availed cumulatively on the family members, more like an umbrella cover, typically there are no individual limits, any number of claims can be made during a year.

It makes sense to avail health cover earlier in life, age definitely affects insurance plan in terms of coverage as well as cost. The older you are, the costlier your health insurance premiums.

Investment + health cover

A new genre of plans have brought in the concept of health and wealth in its true sense. The plan essentially will be more expensive than your plain vanilla cover, a part of the premium paid will be set aside for investment typically in a fund (market related -- debt / equity). This fund can be used after certain period (typically five years') towards your out-of-pocket expenses by means of withdrawal from the fund.

These have caught up the fancy of individuals lately, who are typically eager to get an add-on at every instance.

Portability

Health insurance portability will help policyholders to change their insurer without losing any credit or benefit for the period of cover with the existing insurer.

This helps the most in cases of pre-existing diseases since for every new policy pre-existing diseases are excluded from the health insurance cover for a certain period from the date of commencement of the policy. With portability in place, the policyholder will get the benefit of the period served under existing insurance policy when he changes the insurer. Portability does not essentially mean that the premiums are going to remain constant, they would depend on the new insurer's norms.

Migration right

With the advent of portability, came migration right, Individuals, who are covered under group mediclaim policy, such as one provided by the employer, shall have the right to migrate from such a group policy to an individual health policy with the same insurer. Post which one could port it to another insurer, as intended.

The portability and migration norms have been clearly defined by IRDA (Insurance Regulatory Development Authority), it is yet to be seen how the same is implemented by insurers to benefit the common man.

Tax benefit

Insurance premium payable on health insurance policy is tax deductible under Section 80 (D) of the Income Tax Act 1961.

Rs 15,000 can be claimed to be deducted on health insurance under Section 80 (D) and further Rs 15,000 can be claimed for parents. This limit increases to Rs 20,000 in case any of the dependant parents are senior citizen. Total amount that you can claim for deduction under sec 80(D) is Rs 35,000. For claiming the tax deduction the premium payment has to be either by cheque or credit card. Cash premium payment does not qualify.

Planning for healthcare is absolutely pertinent, and to ensure that we are not caught off-guard with critical illnesses during distressed situations like job losses, transition etc., hence creating the need to build a corpus to meet medical expenses during such times. Further, it is during these times that you need to ensure that you have a medical policy apart from the one that your employer provides.

Hope this brief helps you take care of your health care needs appropriately, since this is an essential part of financial planning.