This Dussehra, use this method to boost your health insurance

While financial planners plan for retirement, education, marriage, home purchase, travel, etc., they generally miss out on one of the most important life goals – the physical survival goal. This could be a big miscalculation while planning for old-age. Let us understand how one gets this wrong.

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Buy health insurance

As you age, health insurance premiums are likely to accelerate, especially if you have been making claims. The probability of making claims increases as you age, especially beyond 60. Since life expectancy has improved significantly, you need to plan for medical expenses for a longer period. The life expectancy at birth has gone up by nearly 15 years in the last 30 years to reach 70 and is expected to be around 80 years in the next 30 years. Life expectancy is higher among the affluent class because of better access to medical facilities.

Impact of inflation on health Insurance

Again, in view of the long periods and the impact of inflation, inflation for medical costs is significantly higher -- around 15 percent, compared to the overall inflation numbers of 6-7 percent. Therefore, if one is planning to meet medical expenses from one’s retirement corpus, which are modelled generally at 6-7 percent inflation rates, he/she is going to fall short of the required expenses and will need to take significant cuts while deciding on the available healthcare options.

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Influence of lifestyle and environment

Due to the current lifestyle and environmental factors, the incidence of chronic diseases has gone up significantly, and one needs to plan for higher medical expenses. Moreover, advancement in medical science and globalisation have made numerous healthcare treatments and cures available to us.

However, they come at a significant cost as they are benchmarked to global cost structures. Not being able to access an available line of treatment due to lack of finance could be antagonising. Once you buy health insurance, hopefully at a younger age, consider adding critical insurance to your portfolio. If you are already in your 30s and 40s, don’t wait any longer; buy a critical insurance policy right away.

Also read | How to decide about the health cover upgrade in your 40s

Plan for long-term good health

While the traditional approach towards health insurance remains important, there is a clear need to do more when it comes to planning for long-term good health.

If one has employer-provided health insurance, rather than going for an additional health insurance policy, one should start a systematic insurance plan (SIP) to build a sizable corpus as part of a healthcare account.

If one does not have a company-provided insurance, one should definitely buy a basic plan and also start a SIP as your own healthcare account.

To understand how impactful one’s own healthcare account could be for future healthcare costs, let us look at some simulated numbers.

Even if you have an employer-provided insurance cover, it’s better to have your standalone, personal health cover as well.

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SIP and insurance premium

How much should one invest in a healthcare fund every month to have a decent amount after some time? Here’s an illustration.

Assume that for a person in his 40s, the annual insurance premium to be paid is Rs 35,000, for a sum insured of Rs 10 lakh. Also, assume that the annual inflation and the annual portfolio returns are both taken at 15 percent.

A back-of-the-envelope calculation shows that if you would need to start off with a lump sum amount of Rs 2 lakh, and then start a SIP to invest around Rs 3,000 per month – which is the Rs 35,000 that you would have otherwise paid for the insurance premium, divided by 12, in a long-term core equity portfolio and increase the SIP amount at the same rate at which the insurance premiums are expected to go up.

In a 10-year period, against all the annual insurance premiums paid under a standard approach, the total value in this healthcare account would be more than Rs 18 lakh.

Long-term orientation for corpus

Even if we model a medical emergency in the middle of this 10-year period where one needs to spend around Rs 5 lakh, the remaining corpus still grows to more than Rs 12 lakh -- more than the total sum insured value of Rs 10 lakh of the insurance plan, which, typically, has a number of deductibles and riders.

If we model a 20-year period, where you are covered under a standard health insurance plan either by the employer or otherwise, and you continue to build your healthcare account, you can achieve a corpus of more than Rs 1 crore, which can take care of the healthcare needs much more than what an insurance plan at a senior age can provide for.

Keep in mind that this approach requires a high level of discipline and long-term orientation to sail through the volatility of equity markets and benefit from long periods of compounding.

Health is wealth

This Navratri, while we come back to a sattvic lifestyle to reap health benefits, let us also resolve to plan for lifelong mental and physical health by creating your own healthcare account.

As you work with your financial planner and investment advisor to plan for healthcare expenses, it is always important to take guidance from a health expert to maintain the best of health. In fact, many health insurance companies offer lower insurance premiums to people with higher fitness levels.