Health is Wealth

This old saying is true in more ways than one.

Not only do we create more wealth if we are healthy and top of our game, but a health crisis also could lead to significant wealth erosion. A hospitalisation due to disease or accident could wipe out your savings and derail your entire financial plan. So covering yourself against medical emergencies is one of the smartest decisions you can make towards financial independence. This is done by buying a health insurance policy, also known as Mediclaim or Hospitalisation Policy.

There are a few things one must consider when buying a health insurance.

1. Type of Policy (Individual vs. Family Floater)

2. How much cover/ Sum Assured

3. Employee Health Policy vs. Private Policy

4. Riders

Type of Policy:

There are essentially two types of Health Insurance Policies - Individual and Family Floater. Individual policies cover an individual or a group of individuals for a specific sum per person. On the other hand, a floater policy covers a family for a sum total of the cover across all members of the family. So two 10 Lakh individual policies for a couple would cover the husband and wife for 10 lakhs each, while a single 20 Lakh family floater for the same couple would cover them for 20 Lakhs in total. In case of a hospitalisation, either of the family members are covered up to 20 Lakhs in a family floater policy.

Typically, one would always be better off to buy a family floater policy for a young family, because it provides a higher level of cover for any member who might need treatment. This makes sure you pay lower premium for a higher level of cover, as it is unlikely that all members of the family will need a high ticket treatment in the same year.

However, if you are a senior citizen yourself or are planning to insure your parents, then individual policies for the senior citizens might be preferred, due to age related premium increase. Similarly, if you want to insure your young family along with your elderly parents, it is better to buy two separate policies. One for yourself, spouse and children; and another covering your parents. Always remember that your premium will get revised upwards as you age, even for your existing policy.

How much Cover?

The amount of cover is the next important decision. Too little cover, and you would find yourself in a tough spot in case of an emergency. Too much and you will keep a paying a high premium, which could lead you to ditch the policy in itself.

It is dependent on many aspects, such as your age, lifestyle, health, type of hospitals you would visit etc. However there are some thumb-rules.

1. In the early years, your health cover should be at least 50% of your annual income.

2. Minimum cover based on your family status is also recommended: For an individual: 3 lakhs, For a couple: 5 Lakhs and for a family of four: 10 Lakhs.

3. Finally, a good benchmark is to take an insurance that at least covers a simple heart surgery (Bye Pass) in a hospital of your choice.

Employee Policy vs. Personal Health Policy

Many organisations provide a company health policy for their employees and their families. While it is a great benefit, you can not rely on it completely. There are many reasons behind it. A prolonged illness could lead you to lose your job, which would also end the health benefit. Most companies have tiered amounts of cover based on designation, which means that the company policy amount may not be sufficient to take care of your needs if you are a young professional.

Hence, one should always have their own personal policy in addition to the company provided health insurance. That way, you have a continued cover of your choice in case of an emergency. That said, in case of an illness, always use your company policy first, as you would not lose the no-claim bonus or any other benefits you may accrue because of not having a claim on your personal health insurance policy.

Riders

Buying a health insurance policy could become quite a complex decision, as most policy come with a lot of optional bells and whistles - known as riders. Room Rent Waiver, Personal Accident, Hospital Cash, Critical Illness and Maternity cover are the most common riders offered. One must look at the need of these riders very carefully before opting in.

For example, if you are a tradesman or a self-employed professional, then a hospital cash rider would be useful. Do not add a rider just because it sounds good, as the policy premium keeps building up with each rider.

Time is of the essence! The younger you are while buying a health insurance policy, the better it is for you (no tests, less probability of a claim rejection, all diseases being covered etc.), hence start now, and make sure you and your family are covered against any health challenges that might come your way.