Optimise your Medical Cover





Choose medical insurance according to your needs, not to avail tax benefits.

Indians are known to leave things for the last minute, and tax planning is no exception. As the end of the tax saving season nears, there is a mad rush to buy whatever instrument offers tax deduction. Medical insurance is one such product. The premium paid for health insurance, up to `25,000, is allowed as special deduction under Section 80D (`30,000 for senior citizen), and can help save a significant amount of tax. For instance, a senior citizen in the 30% tax bracket, who spends `30,000 on medical cover, can save `9,027 in taxes (see table).

However, you need to consider whether you are buying health insurance for the cover you need, or only for tax savings. If it's the latter, it might not be a good idea. This is because heath insurance premium is a `spending' and should not be treated as an investment.

The first question to answer in this regard is whether you need medical cover at all. Experts believe that basic medical cover is necessary even for people who have a substantial contingency fund stashed away. When medical insurance is available at reasonable cost, there is no need for you to dent your contingency fund for this. You can save, but one trip to the hospital can wipe out the savings you have accumulated over 10 years.

As mentioned earlier, it is important to keep in mind that health insurance is not an `investment' that will come back to you later, and therefore, any insurance beyond your need is a waste. The second question, therefore, is how much cover do you need? This varies depending on the age (you will need less cover when you're younger and more as you age), as well as on family medical history (take bigger cover if your parents are prone to certain hereditary conditions like diabetes and hypertension).

The third question to ask yourself is what kind of cover do you need? Since Section 80D benefits are also available for smarter products like critical illness covers, top up plans, etc., there is no need to buy medical cover for taking advantage of Section 80D benefits alone. This question is critical because most of us may have some kind of cover. For example, the government provides healthcare facilities to its employees. Most people working in the organised sector also have some group insurance cover. Is that enough, or should you buy a personal health cover as well? The general consensus among experts is that it is better to have an additional personal cover. One issue with the company cover is that you lose cover as soon as you quit the job. I was between jobs when I needed the health insurance. Another problem of relying only on company cover is that it becomes difficult to get health insurance cover after retirement.

The base cover itself comes in two forms-one with sub limits (for instance, that maximum room rent cannot exceed `3,000 per day), or one without. Ideally, one should go for insurance without any sub-limits. Using a top-up plan is a smart way to reduce cost without compromising your insurance cover. Compared to a base cover of `10 lakh, a combination of base cover and top up will be cheaper. Instead of taking a base cover of `10 lakh that costs around `7,500, you can go for a base cover of `2 lakh, which costs around `2,700, and a top-up of `8 lakh, for an additional cost of `3,800, so the total cost will come only around `5,500.

However, people who choose the top-up option need to be careful about the type of top-ups they buy. "Instead of catastrophic top-ups, like one where each claim needs to be above the base cover, people should opt for aggregate top-ups. These allow the claims to kick in once the aggregate amount goes beyond the base cover limit

Critical illness cover is another smart way of getting your money's worth. The main sales pitch for health covers is that they will cushion the blow if you are suddenly diagnosed with a major illness. So it makes sense to buy a cover for just that. One advantage of a critical illness cover is that you get the money when you are diagnosed with the disease, and not based on the hospitalisation and treatment,

This raises another question: do you need a base plan or a critical illness cover enough?

Base plans and critical illness covers serve two different purposes, so you need both. The work in a complementary fashion. In the event of a sudden critical illness in the family, you may be forced to take leaves for an extended period of time, say for six months at a stretch, for treatment or recovery. Critical illness cover serves as a substitute for the income you lose in the process.

In addition to direct hospitalisation expenses, there will also be various other expenses involved in dealing with critical illness. Use the base cover for the hospitalisation expenses and the critical illness cover to supplement income, and other expenses not covered under basic cover.

There are also different varieties of critical illness covers available. So, should you choose a broader plan, or one that is specific to a few diseases? This question is especially relevant because some companies are launching disease-specific plans that cover only major illnesses like cancer and heart disease. Most major diseases are covered under critical illness plans, so there's no need to opt for disease-specific plans

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