Why Health Insurance Should Be A Pillar of Your Financial Planning?

When Mr. Khanna (77) was hospitalized for Coronavirus infection, his medical bill amounted to Rs 6 lakh. He claimed the money from his health insurance company. If not for the health insurance, he would have had to pay the entire amount from his retirement corpus.

Rohit and Seema (35 and 34) had bought a maternity add-on plan of Rs 25,000 a few years back and utilized it when their baby was born. If not for the maternity insurance add-on in their health insurance policy, they would have had to pay this amount from their pocket. 

Vineet (37), was however, not that lucky. Vineet never believed in health insurance but it really hit him only when his mother had to go through prolonged hospitalization. The total bill came to Rs.8 lakhs. He had to fall back upon his mutual fund portfolio. He managed to pay the bills without borrowing but it means that his retirement corpus stands reduced to that extent.

What do these examples have in common? 

It just means one thing.

See more of this infographic on financial planning with health insurance.

Most of us tend to underestimate its importance because we don’t really know how health insurance works. In the case of Mr. Khanna and Rohit, they were lucky to have had health insurance. However, Vineet had to fall back upon his retirement corpus to pay the hospital bills. Clearly, Vineet could have done better to include health insurance as part of his financial plan. 

Healthcare expenses may seem simple when one is young and having a steady income. But with the increase in age, healthcare costs also increase. Moreover, rising health inflation is not easy to fight for those who depend on a salary or limited income resources.

That is why, it is important to include health insurance when planning finances. Not only does it have a direct positive influence on financial stability, it provides numerous advantages that can relieve a person from healthcare concerns.

In this blog, you’ll learn about:

• How does health insurance help in financial planning?
• Benefits of health insurance in financial planning
• Tax benefits of health insurance in financial planning
• How does health insurance help in financial planning?
• Health insurance is a financial boon during medical emergencies

As seen in our above illustrations, medical emergencies can come without knocking on the door. Given the steep medical care expenses in urban centres and the non-availability of quality medical care in villages and small towns, it is important to safeguard one’s emergency healthcare needs with the help of health insurance.

 

Health insurance helps after retirement and during times when income is unsteady

For those who are retired or have an unsteady income, meeting sudden or even planned large expenses, might be difficult. Large health expenditure can be taken care of, if health insurance has been a part of financial planning. The earlier you buy a health insurance plan, the more benefits you can enjoy and the lower will be the premium.

 

Health insurance can help take care of recurring medical expenses

For those who have a large family of dependents, medical expenditure could be a recurring factor. Pharmacy bills, doctor visits, diagnostic tests and health check-ups can add up to huge expenses. However, if there’s a proper health insurance plan to cover some or all of these expenses, you would be in a much better position.

 

Benefits of health insurance

Having a health insurance plan has many benefits that end up helping in financial savings. Let’s look at some of the healthcare expenses that health insurance plans take care of.

A comprehensive health plan can keep away dents on the pocket

Many people, especially those with a large family of dependents, face regular and frequent medical expenses. Having a comprehensive health insurance plan could provide financial coverage in the event of medical emergencies. The extent of coverage provided by health plans varies from plan-to-plan. While some plans are designed to provide comprehensive coverage, others cover only specific diseases. With health insurance, the insured does not have to worry about medical treatment expenses and can avail quality treatment at the best of hospitals without worrying overly about the costs.

On the other hand, imagine a family of four to six members without any sort of health insurance plan. Even one or two major emergency hospitalizations in the family, could substantially derail the family’s finances. Health insurance plans also offer free health check-ups after the completion of a certain number of years, which means, a policyholder can receive quality check-up and attend to health needs.

Hospitalization and healthcare isn’t just limited to the number of days one is hospitalized. What about pre and post hospitalization expenses? Health insurance covers these as well. Most comprehensive health insurance policies provide pre hospitalization coverage of 30 days or more and post hospitalization of 60 days or more. These are medical costs incurred by the policyholder before and after hospitalization. These may include ambulance rent, diagnostic tests, post surgical care and more.

 

Hospitalization allowance can be a huge financial help during times of hospitalization

Hospitalization allowance or hospital daily cash allowance is a feature that provides a fixed amount of cash to the insured during the time of hospitalization. The number of days to be spent in the hospital to avail of this facility may vary from one insurance company to another. This allowance can be beneficial in case of medical emergencies and hospitalization as one does not have to worry about the daily hospital expenses up to a certain amount.

 

Cashless claim option helps keep your savings and personal money untouched

Let’s try to understand the benefits of a cashless claim in a financial plan with an example. Pradeep had a comprehensive health insurance policy but it didn’t have the cashless claim feature. When Pradeep’s son was hospitalized, he had to break his fixed deposit of Rs 10 lakh in order to pay for the hospitalization costs.

In the event, Pradeep lost a few lakhs of interest money that he had earned through compound interest. Moreover, he would now have to start the fixed deposit cycle again and would have to wait for years to reach the same level of earning from compound interest. 

But a cashless claim facility can ensure that policyholders do not have to touch their personal money at all. With the cashless claim option, the insured can receive medical treatment without having to pay for the expenses to the hospital. In a cashless claim, the health insurance company directly makes the payment to the hospital. However, this facility is available when the insured chooses one of the hospitals from the insurer’s approved hospital network. 

 

Health insurance plans provide domiciliary treatments, too

Health insurance policies provide coverage for treatments taken at home. Called domiciliary hospitalization, domiciliary treatments are those where the insured is treated at home and not in a hospital. It may also include expenses related to treatments taken at home. However, it should be noted that all health insurance plans do not offer this coverage. 

Normally, only allopathic treatments are considered under domiciliary treatment coverage; not alternative treatments. It requires the insured to provide justification of why he / she cannot be hospitalized. A key point to be noted for domiciliary treatment is that most insurers put a limit to the coverage amount. The entire sum insured cannot be utilized for domiciliary treatment.

 

OPD treatment

OPD Cover is Out Patient Department Cover, which means coverage for expenses such as doctor’s consultation fees, pharmacy bills, dental treatments, and health check-ups, and diagnostics tests. Insurance plans that offer coverage for OPD expenses compensate for the above-mentioned expenses. 

These expenses are generally not covered by regular health insurance plans. Even though these expenses may seem small compared to hospitalization, over time, they can add up to huge amounts.

 

Tax savings and financial planning go hand-in-hand – health insurance is a big part 

Health insurance policyholders are eligible for tax deduction benefits under Section 80D of the Income Tax Act. The tax deductions are based on different age groups, and types of plan, among other factors. Tax benefits range from up to Rs 25,000 to up to Rs 1 lakh, depending on the plan and the policyholder’s age. Let’s look at how one can save tax under each of the Sections of the Income Tax Act.

Section 80D: Under Section 80D, an individual or a HUF (Hindu Undivided Family) can avail of tax deductions. The premium paid towards a health insurance policy can be deducted from the total taxable income. 

Case	Tax benefit
Individual or all family members under 60 years	Up to Rs 25,000 can be deducted from the taxable income. This Rs 25,000 should have been paid as premium or towards preventive health check-up.
Individual, all family members and parents under 60 years	Up to Rs 50,000 can be deducted from the taxable income. (Rs 25,000 towards self and family insurance + Rs 25,000 towards parents insurance)
If eldest member in the family is under 60 years and parents are above 60 years	Up to Rs 75,000 can be deducted from the taxable income. (Rs 25,000 towards self and family insurance + Rs 50,000 towards parents insurance)
If self or eldest member in the family is over 60 years and parents are over 60 years	Up to Rs 1 lakh can be deducted from the taxable income. (Rs 50,000 towards self and family insurance + Rs 50,000 towards parents insurance)

 

Section 80DD: Section 80DDB lists specific ailments. An individual can avail of tax benefits on health insurance under this section if the individual incurs medical expenses towards any of these specified diseases for self or a family member. 

• Conditions under which one can avail of tax deductions under Section 80DDB:
• Individuals and HUF who are residents of India can claim deductions.
• To avail this benefit, the taxpayer has to provide a certificate of the disease. The diseases listed under this section are: dementia, ataxia, aphasia, Parkinson’s, motor neuron disease, cancers, thalassaemia and AIDS among few other diseases.
• For individuals and family members under the age of 65 years, the limit of deductions is Rs 40,000 paid towards the treatment of the disease.
• For senior citizens and super senior citizens, this amount can be up to Rs 1 lakh.

In all the above cases, the deduction cannot exceed the actual amount spent. Now that you know the many benefits of health insurance for financial planning, are you going to revisit your financial plan and make amendments to incorporate health insurance in it? If you need help or if you have any questions, we’re here to help.