Self-insurance a viable option for health cover?
Sickness may come unannounced. But it’s always good to be financially prepared for an emergency—even a medical one. While most people are covered under their own or spouse’s employee medical insurance, many also buy individual health cover. But, is buying medical insurance the only option? What about those who are not eligible for medical cover?
The dictionary defines health insurance as insurance taken out to cover the cost of medical care. You have to pay a certain amount as a premium and in case you fall sick and need medical care, the insurer pays the cost, either totally or partially. More often or not, the policy won’t cover certain diseases and certain pre-existing diseases for a specific period.
Anant Ladha, founder of Invest Aaj For Kal and research head says, “Usually it is seen that between 25 and 45 years of age, claims are usually very rare.” This is usually the case when you are most likely employed. Ladha says, “During this time you are usually covered by your employer’s group medical policy.”
Keeping these two facts in mind, can a case for self-insurance over buying a separate personal health insurance be made? Ladha continues, “If we can self-insure ourselves during this time and start building a corpus for our health emergencies we can easily insure ourselves and at the same time create wealth.”
Consider an individual pays a yearly health premium of ₹10 lakh cover. If he decides that considering he is fairly healthy and is already covered by his employer, instead of buying a personal health insurance policy, he would go the self-insurance way. If he invests ₹3,000 per month (SIP) in an equity fund, instead of monthly insurance premiums, and the expected rate of return was of 18% for the equity funds.
Ladha says, “ ₹36,000 per year or ₹3,000 per month saved for 10 years makes a corpus of ₹10 lakh and corpus of ₹27 lakh in 15 years and a corpus of ₹70 lakh in 20 years (Seven times of what health insurance we initially opted for).”
WHEN GETTING INSURANCE IS AN ISSUE
In the above example, we saw that self-insurance is an option for people instead of buying health insurance. After all they are healthy and already covered by their employer. Ladha says, “At times people are afraid of health insurance due to details of disclosures and health check-up is required. Or at times they won’t be comfortable in disclosing some facts”
When you already have medical issues, many might be actually tempted to lie on insurance forms. Pankaj Mathpal says, “If you have any pre-existing medical complications or you consume alcohol or smoke you should never lie.”
What if you don’t have an office insurance cover nor is a private insurance company ready to give medical insurance? Mathpal says, “It’s not very often that we see that an insurer won’t give a cover, they might adjust premium amounts, make some exclusion, but in such a case you can always approach other insurance companies.”
In case you find yourself in a place where you got rejected by an insurer owing to an existing ailment and want to go a self-insurance way, your investment strategy won’t be equity oriented. Mathpal says, “For someone who is already with medical conditions needs to quickly build a corpus of at least₹2– ₹5 lakh. This can be done via monthly SIP in liquid funds, short duration funds or even bank RDs.” Here the intention is to ensure that the average medical insurance cover amount of ₹2- ₹5 lakh is built via self-insurance and offers good liquidity as well.
Sickness might come unannounced, but it’s best to be prepared.