Moving ahead in our introductory series, this post makes the second important component of a DIY Financial Planning (FP). The reason behind putting Term Insurance (TI) and Health Insurance (HI) before other FP Components is that they are relatively easy to set up. Once you have chosen the plans you need, there is hardly anything to watch over it accept for paying regular premiums. You wouldn’t need to review them every few months to stay on track like you do with your investments. On the flip side, they deal with deal breaker situations of life. They deal with sudden happenings. Such situations, when they occur, will most likely leave you in a financial mess which will only add to your mental stress, not to mention the emotional break down which has been caused by such unfortunate demise or a very critical medical condition of someone in our immediate family.
I guess that’s enough horrifying image to consider them at earliest. Why then, people get caught sleeping regarding TI & HI?. Well that’s because of a human learning nature. We believe in learning from others’ mistakes and from our own mistakes. Now that’s also true anagramatically. Do we wait for something bad to happen so that we can learn something from it?. Just think about it. Many a times our inner vigilante self tries to warn us that such events might occur, but we knowingly ignore it. And we ignore it till the day comes when something bad really happens and we have no one to blame except for ourselves. The number of people who have shown some intellect and have taken a proper TI and HI at right time is still less than the number of those who have purchased such plans after witnessing a catastrophic episode of life around them. Though I too belong to the later list, I strongly suggest that you shouldn’t. Do not wait for something bad, something to teach you a life’s lesson, to happen. Go for it as early as possible. Buy TI and HI immediately if you haven’t already. And it’s also a necessity for the kind of Financial Planning we are talking about.
In previous posts, we discussed about Term Insurance in detail. This is about the other one and that is Health Insurance (HI). We will talk about, in simple terms, what it is, why it is needed and some of the things to consider while you go for it.
What is it and why?
Like a pure TI, HI is an expense. An expense to protect your hard earned money in case of a medical emergency. Term Insurance protects income of the family in case of a person’s demise. In most cases, a person has to die for his family to get the benefits of his TI.
But what if he met with such an accident that he didn’t die. And his condition is such that to be able to recover fully, he would need a lot of money for various surgical and medical procedures in hospital. For that, he would either have to arrange it from his savings, or borrow from relatives and friends. He would have to use the money that he might have saved for some important things such as an education fee for his child or house hold repairs or such things you might not take an insurance for. The thing is that, if he would have taken Medical Insurance/ Health Insurance he would have been able to get the treatment in hospital at just a fraction (insurance premium) of the actual cost.
Your hospitalisation expenses should not eat away your savings or investment. It affects your long term financial prepositions in a bad way. And in today’s hactic life, a medical emergency is all but predictable. So, to tackle it wisely you need HI. HI/MI provides you protection against medical emergencies. It covers treatment of many day care procedures, room rent in hospitalisation, ambulance service rent along with other treatments and medicines. Of course, there are some IFs and BUTs out there which require your attention while you choose a suitable HI plan. I have listed hereunder, some of the features of a Health Insurance policy which might be helpful while you look for a good plan.
As with TI mentioned in earlier post, online buying of a Health Insurance can save you a sizable amount while determining the premium.
Individual plans cover an individual where as in floater plan, family members share the SA. Individual plans are good in the sense that they cover each person in the family seperately. But the collective premium will be much higher as compared to floater plans. Often the floater plans have been proved cost benefitial. But, if the age gap between the two extreme family members is bigger, the floater plan may not prove to be cost effective as the premium will be calculated on the basis of the age of the eldest member of the family. In such case, you can choose a combination of 2 seperate plans, an individual and a floater one as per your family need.
There can be certain illness specific riders for an additional premium. Like cancer or other critical illness. It provides additional SA just for that particular illness. In case of a floater plan, rider or add-on can cover a particular member or an entire family.
Sub limit is a cap put on certain feature of a plan to limit the cover for particular feature to that extent. Most plans provide for ambulance service in the range of 1500-5000 for the SA 3-4 Lac. There are also daily cash, room rent etc which may have sub limits. But it’s a room rent sub limit that you should take cautiously. Suppose your plan has a hospital room sub limit of Rs. 2000 per day, And a hospital you are in, costs you Rs. 5000 for its rooms, then you will have to shell out additional Rs. 3000 from your pocket. But there is a catch here. If you are thinking that it’s just the room rent in excess that you have to pay, you are wrong. At the time of claim, you will be shocked to see that almost everything else is based on your room selection. Like doctor’s visit, charges of the equipments used, even a cup of tea. Actually, hospitals charge you not based on their services but based on your ability to pay. There will be different rates for the same services depending on what kind of room you have selected. So, if you choose a plan with such sub limits, they can still make a hole in your pocket at the time of payment. Therefore, you should go for a plan which doesn’t have any sub limits at all. And, if somehow, you could not afford a plan without sub limits, read carefully it’s terms and conditions and the extent to which the plan offers cover.
Day care procedures and OPD
Day care procedures mean the treatments that are done within 24 hours due to technological advancements which would otherwise have taken a day. Most of the plans cover around 140 or so such procedures. Some HI plans may cover OPD. OPD is for Outpatient Department which means a department of the hospital that provides diagnosis and treatment of patients who have health problems but do not require a hospital bed or require to be admitted for overnight treatment at the time. Go for the plan which covers most number of day care procedures and other treatments like OPD.
When it comes to payment to a hospital, some plans may have a condition of CoPay that is co-payment. As you would understand, it means a portion of a claim, say 20 or 30 percent, would be born by you. There may be geography based limits too. It’s just like sub limits earlier. Avoid such plans unless they otherwise fit exceptionally well within your criteria
Look for it if you are going to opt for alternate medicines and treatment like Ayurveda or Unani. Many plans cover these upto SA or a fixed amount.
Coverage of Pre-existing conditions
If you have any existing disease or a condition at the time of buying a HI plan, it may not get covered. Also, there are some conditions such as Hernia, Cataract etc which are not covered instantly. Instead, there will be a waiting period of normally 2-4 years before such diseases and conditions are covered. The lesser this period, the better.
It’s the list of hospitals that have a tie-up with the Insurance Company for cashless treatments of it’s policy holders. The bigger the network, better the chances that you are going to find one of such hospitals near you.
These are diseases and conditions that are not covered in a HI plan. There will be a list of these in a policy document. It includes certain conditions arising out of sexually transmitted diseases (like HIV AIDS, gonorrhoea etc), some dentals surgeries, injury due to a war or nuclear attack, etc…
Almost all of these features affect the premium part. Plans with sub limits and CoPays may have lower premiums, but may not prove beneficial in case of back to back claims. Read carefully the offerings of the plan, compare them with that of others. There are hundreds of plans available. Recently, there are many portals which offer comparison between HI plans. You can use them to compare various plans based on above features and select the ones that fit you.
So, that’s it. We will go further in our Introductory Series regarding Emergency Fund in the next post.
Will be back soon…