World Health Organisation (WHO) statistics show that approximately 47% hospital admissions in rural India and 31% in urban India are funded by loans and asset selling. The same study also reveals that roughly 70% Indians spend their full income on healthcare and purchase of medication, and that around 3.2% Indians will drop below the poverty line because of the financial burden of high medical bills.
These alarming statistics prove how medical contingencies can strain our cash flows and negatively impact the achievement of important long term financial goals. The burden of loans taken to cover for medical expenses adds to the problem further.
Growing medical inflation and advancements in medical technology are contributing to rising medical care costs. Simultaneously, longevity is improving, making it essential to avail of more medical care. What is the solution? Apart from healthy lifestyles, purchasing adequate health insurance is the key.
Along with life insurance, health insurance is the other most crucial type of insurance cover that is an absolute necessity. When health-related contingencies strike, it is a good health insurance policy that acts as a strong financial safeguard, more so in case of critical, long-term illnesses.
Without health insurance, even those who are financially well off find it difficult to manage in case of medical emergencies. This shows that despite having resources, urgent needs and lack of planning can burn a hole in one’s pocket during medical exigencies. Still others simply lack financial resources altogether. It is in such situations that health insurance comes to the rescue, helping one avail of instant medical treatment when the need arises.
Listed below are some other important reasons why health insurance is not an option, but a necessity in today’s day and age:
1. Skyrocketing Medical Care Costs
With progressing time, health care costs are shooting up and will continue to increase - Good quality medical treatment comes with a high price tag. When it comes to major organ related ailments, critical illnesses, organ transplant, etc., the quality of treatment cannot be compromised upon while the associated medical/hospitalisation expenses have no limits, creating a catch-22 situation. Therefore, without health insurance, medical problems eat into a huge amount of savings accumulated towards important long-term financial objectives.
If you still have not invested in a health insurance policy, now is the time. With a growing number of private insurance firms in our country, health insurance costs are becoming more competitive and affordable, and services are also seeing a positive change.
2. Growing Incidence of Lifestyle Diseases
A report from WHO showed that respiratory and cardiovascular diseases, categorised as lifestyle ailments, are a major threat across the globe – accounting for 38 million global deaths, annually. Of this, 28 million deaths are seen in low and middle income countries, including India, making it crucial to have sufficient health insurance.
3. Dual Benefits
It is a shocking fact that in recent times, age has nothing to do with serious ailments, particularly due to sedentary lifestyles and lack of physical exercise. Even people less than 40 years are developing diabetes, heart/blood pressure/cholesterol problems, etc. Some people as young as 25 are diagnosed with serious health issues, traditionally believed to affect only the older population.
It is therefore not advisable to wait to reach a certain age to buy health insurance. In fact, the younger you are when you buy a health insurance plan, the better are the deals and higher the discounts on the premiums due to the belief that younger people are generally healthier.
Today, health insurers also offer preventive and wellness programmes to encourage policyholders to adopt healthier lifestyles. Therefore, today’s health insurance policies offer dual benefits - medical cover and the opportunity to lead a fitter life.
4. Wiser Financial Planning
Insurance is akin to a risk management tool. By taking health insurance, the possible financial turmoil and risks that health emergencies bring along with them can be effectively tackled. The resultant financial planning also safeguards one’s savings and other investments as the assets/investments do not need to be liquidated out of sheer lack of choice.
5. Systematic Medical Treatment
All health insurance companies have a hospital network empanelled with them. Therefore, taking a health insurance policy helps the policyholder avail of good quality medical treatment in a planned way. In case of a medical emergency, the policyholder simply needs to visit the hospital that is empanelled with his/her insurance provider and inform the company about the hospitalisation within the stipulated time. Following this, the insurance company contacts the hospital in question to ensure that the medical treatment is expedited. This becomes extremely helpful for the insured since good and speedy medical treatment is guaranteed, and hospital bills either get paid directly by the insurance company, or the insured pays and the insurer reimburses later.
6. Tax Implications
Along with financial protection and medical cover, health insurance offers tax benefits as well. The premiums paid for health insurance policies of individuals aged less than 65 years qualify for tax deductions up to an INR 15,000 limit, under Section 80D of the Income Tax Act.
W.e.f. assessment year 2016-17, this exemption has been increased to INR 20,000 per annum, if the premium is contributed towards health insurance with an additional INR 15,000 for parents. An additional INR 20,000 deduction, which is INR 30,000 w.e.f. assessment year 2016-17, may be availed in case of senior citizens. One can also claim separate deduction towards mediclaim premium paid for parents.
Under Section 80D of the Income Tax Act, deductions for mediclaim premiums apply to individuals, senior citizens and HUF. You may like Health Insurance Tax Benefits under Section 80D
Lack of Awareness and Viewing Health Insurance as a Tax Saving Instrument
While most people in India are becoming increasingly aware about the benefits of maintaining good health and having adequate medical cover, a large percentage of the population still considers health insurance as merely a tax saving tool. Therefore, they either get over-insured, or get a health plan that is not adequate to meet their actual needs.
In a survey conducted by ICICI Lombard towards the end of 2015, it was seen that 75% out of the 1,400 respondents in the 25-35 age bracket said that they had health insurance. However, about 46% said that the primary motive to purchase the health cover was to avail of the tax benefits. Among the female respondents, almost 64% cited this as the main reason for buying health insurance. The survey’s findings lead towards a conclusion that most Indians purchase health insurance only to save tax and not so much for the benefits. However, this is still better than not having any health insurance at all.
Despite an increase in awareness and rise in demand for health insurance, India still continues to remain highly under-penetrated, as only 0.16% of the total population is insured for health, says IRDA. This is the main reason why 70% of health care expenses are met from one's pocket.
Getting health insurance without an exact understanding of one’s needs can adversely affect one’s financial well-being. Rather than just a tax saving tool, the main purpose to get health insurance should be to manage and ameliorate one’s risk-management capacity. The best solution is to gauge one’s exact needs and do adequate research about different available health plans before making a final decision.
In another survey by Max Bupa, half the respondents felt that health insurance is only meant for those who are old, and the other half felt that they are healthy and do not require health cover. Numerous respondents said they were confident about their financial capabilities and are building sufficient savings to sail through a comfortable post-retirement life, and could easily foot medical bills if the need arose.
Many respondents were not too sure about the benefits of health insurance, while several others said that they look at health insurance as money being wasted as the returns are not much.
On the positive side, about 50% respondents said they renew their policies regularly.
How much Health Insurance?
A health insurance floater policy for INR five lakhs is good enough in most parts of India. However, in metros, it may be insufficient, considering the higher medical treatment costs. Just two days hospitalisation for common ailments could generate a bill as high as INR 60,000 in private hospitals of metro cities. For more serious ailments, it could be several lakhs.
A regular health (indemnity) policy for INR three to five lakhs will not be of much help in case of diagnosis with a serious, critical ailment. In such cases, critical illness plans are more helpful and are better than some disease specific covers. However, they cost more and only cover specific ailments.
An INR seven to 10 lakh health insurance cover is ideal. The good thing is that the premiums do not increase in the same proportion as the increased cover. For instance, for an INR five lakh family floater cover if the annual premium is INR 12,000, then for double the cover, the annual premium will not be doubled, i.e. 24,000, instead, it would work out to approximately INR 18,000 annually.
Choosing the Type of Policy
The type of policy best suited for you would depend on yours and your family’s exact needs, number of family members, and age of all family members. A young family could manage with an INR five lakh cover, while a family with a higher number of aged members would be better off with a larger floater cover.
It must be noted that family floater premiums are based on the age of the oldest family member. It is therefore better to get a separate cover for members over 50 years instead of including them under a floater plan.
Also, it is not wise to solely rely on employers’ group insurance cover as they come with several exclusions, have sub-limits on room rents, and even have co-payment clauses wherein the insured has to foot a certain percentage of his/her medical bills.
Enhancing an Existing Health Insurance Cover with Top-Up Policies
One of the best ways to enhance your existing health insurance cover at an affordable cost is by taking a top-up policy – these can also complement group health covers offered by employers. Top-ups are also inexpensive compared to family floaters.
Companies usually permit employees to purchase top-up covers ranging between INR two and five lakhs, and the yearly premium for such employer-facilitated covers works out to roughly INR 1,000 per INR one lakh. In case the employer does not permit top-up cover purchase, one could buy a top-up plan independent of the base plan.
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