The absence of personal health insurance, delayed and inadequate cover, and wrong disclosures are among the common mistakes people make.
In a recent article, I wrote about how most people start their financial journey by thinking about where and how to invest. The right place to start one’s personal financial journey is not investing but protection – by ensuring that existing assets and future incomes are protected against untoward events.
While the previous article spoke about the importance of life insurance and the mistakes that people make while taking it, there is another important aspect of protection that needs to be adequately addressed and that is health insurance. Understandably, people make mistakes on this front, too.
Here are seven common mistakes that can derail your plans.
Corporate health policy is enough, personal policy not needed
This is one of the most common mistakes we have come across among people working in the corporate sector – they rely on the group policy that their company gives them and do not have personal cover. They don’t realise two things – one, an office policy is valid only as long as they work in the company and any stretch of unemployment will leave them vulnerable without any health cover. And two, there will come a time when they may not be working (at least in a company) and then it may be a bit too late to take personal health insurance, either for health or cost reasons.
As a practice, always take personal health insurance even if you are covered by a corporate health policy.
Also, to keep costs low, use the concept of base cover and top-up smartly. As long as you have corporate cover, you may invest in a top-up policy (beyond the first Rs 2 lakh) and buy the base cover at a later date when you no longer have the corporate cover. This reduces the premium substantially.
Not enough health cover
The days of Rs 5 lakh cover for the family being adequate are long gone. A minor same-day surgical procedure at an upscale but not super-premium private hospital can cost about Rs 40,000. Going by the experiences of friends and customers over the past two years, an average of Rs 75,000 to Rs 1 lakh per day for a serious illness requiring hospitalisation is the bare minimum that you have to be prepared for. Extended ICU costs will be much higher.
Hence, we now ask customers to take a minimum Rs 20-25 lakh health insurance policy for the family.
Not taking it early enough
People don’t usually take up health insurance unless they are pushed. Maybe the premiums seem prohibitive or they think “nothing’s wrong with me, I don’t need it.” But people don’t realise that health insurance is best taken when you are healthy to cover you when you aren’t. In most cases, once you realise you need it, you either end up paying higher premiums or worse, aren’t insurable.
It’s best to take insurance early, when premiums are low, and use floaters to keep it cost-effective.
A good family floater is an essential foundational requirement in your personal financial journey.
Wrong disclosures
This may seem illogical, but people still make the mistake of not disclosing past health issues or current habits, possibly to save on some premium costs. Remember that in case you are hospitalised, none of these non-disclosures will help because the doctor treating you needs to know the truth. The discovery of such a discrepancy will end up making the policy void and you would lose your cover.
Also pertinent here is that there is adequate information-sharing between insurers and any prior policy/claim rejections need to be disclosed, failing which the policy again risks ending up being void.
Not reading the fine print adequately
Many times, policies of insurers are not comparable because of different exclusions/inclusions, and more importantly, the kind of facilities one is entitled to during hospitalisation. Some policies set limits on room costs as well as the kind of room (single room, twin-sharing or general ward), which you need to be comfortable with. Such policies may be cheaper and being cost-driven when buying a policy is okay, but not at the cost of basic comfort. Hence, before comparing costs, make sure that the features and benefits are adequate and you are not getting short-changed or over-sold.
Critical illness & personal accident disability
A good health insurance policy covers hospitalisation costs when you are afflicted by illness. But many times, critical illnesses or unfortunate accidents lead to prolonged periods of being out of action, which can affect both costs and incomes. These are not covered by normal health insurance policies. These are risks that most people do not take into account.
We recommend that people also consider critical illness policies (where a lumpsum is given if a specified critical illness at a specified gravity is contracted, independent of hospitalisation expenses) and personal accident disability policies (where a weekly or monthly sum as income replacement is given in case of specified serious injuries leading to protracted periods of being unable to work, again independent of hospitalisation expenses), in addition to personal health cover.
Maintain a medical emergency fund
Last but not least, despite having the best health cover, there will still be expenses that are not covered, which is especially true if you have senior citizen parents in your family, for whom medical insurance premiums are prohibitive and come with a huge number of exclusions. This is something we learned even more so during the past two years of the Covid-19 pandemic.
We have therefore started asking our customers to also maintain a medical emergency fund of a certain amount, which is over and above the general contingency fund they keep for job losses and other emergencies.
To combine two popular quotes, “The first wealth is health as you cannot enjoy your wealth if you are not in good health.”
Protecting your health and your family’s health from possible threats, not just today but in the future, is one of the first steps that a smart investor must take in his or her personal financial journey.
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