[Long post][I might be delusional here]
- A typical health insurance for 10-20 lac base cover for parents (2x 55+ YO people, generally healthy) No room limit, no co pay costs about 35-60K per annum (which will increase overtime, with some 2+ year waiting period for pre-existing diseases). For 20s-30s people it would be about 25-30K per annum.
- Given so many stories of cheating and fraud by hospitals (inflated bills for insured persons, deliberately extending treatments and unfair/hidden costs etc) and insurance companies ( turning down genuine claims citing frivolous reasons, opaque T&C clauses, raising premium every year without justifications etc), does it really make sense to pay that much if I can just put extra money early on in my career aside (say 15 lac in FD, accumulated asap or over 4-5 years) and get away from all this trouble?
I know not everyone can afford or even earn this much to just keep this amount aside, this is not for them anyway (I am talking about people earning 15-20+ lpa and no dependents, generally good health, ain't living too lavish lifestyle).This might require pushing other big purchases down the line, along with keeping some extra money aside for emergencies (2-4 lacs). But if done you have effectively created a fund which gives about 6-7% returns, is extremely liquid and accessible no questions asked and is yours even if not used and gives the same cover as the insurance.
I compared these two here.
(Strictly for healthy people with healthy lifestyle earning above 20 LPA with no big ticket purchases in next 3 years like marriage, house, foreign education etc):
Health Insurance - 15 Lac Sum Insured, checks all required boxes
Health Emergency Corpus - 15 Lac - FD
1. 20K/55K per annum to cover you/your parents respectively.
1. Depending on individuals' exact income and saving rate, lets assume 2.5 Years of saving 50K per month.
2. Covers the person for 15 Lac "qualifying" health expenditure after 30 days or 1/2/3 years for pre-existing disease.
2. Covers the person for 15 Lac all kind of health expenditure after ~2.5 years. Essentially the faster you save the more quickly and for more sum you are covered.
3. 10% chance you may not receive it despite paying premiums for years. 20% chance you might only receive a part of it. 50% chance you might never need it.
3. Bank might default, but likelihood is negligible for big banks. Money is yours if not used.
4. Premiums will increase with age, medical inflation is 14% so sum assured needs to be increased, which will doubly increase the premiums.
4. Same issue, but will at least generate 6% returns (the returns are taxed at 30% though) that is roughly 60K per annum for 15 Lacs. Increase the saved amount as per you income.
5. No claim in an year = money paid is essentially lost ; Stop premiums even once = reset probation period ;
5. Money stays with you, compounds as well. There is additional over-drafting facility for temporary needs.
6. Break-even period is about 16 Years assuming if you invest the same amount in nifty in SIP format at 12% return rate. This is essentially why insurances make sense . But given that in case of no-claim you are staring at a loss of 30lacs (Premium paid + interest lost).
6. Any full-claim during the build-up phase might put you in debt (20% personal loan), in case you cannot work after that you are looking at a very bad situation. Any claim between post buildup to next X year means you stand to lose roughly (15 - 1.5X ) lacs ; I got this figure by assuming 15 Lac FD would be generating roughly 1Lac per annum and at the same time the insurance premium would be roughly 0.5lac per annum, cancelling out income tax and tax benefits. BUT, any balance amount after claim will lie undisturbed, unlike the insurance premium paid.
7. Money secretly leaves your bank, leaves you with more disposable income.
7. Psychologically difficult to process a lumpsum 15 lac outflow in case of a claim. Post build-up phase leaves you with a more reliable and flexible emergency fund.
8. In best case you lose money paid in premiums, in worst case you are looking at a lot of debt and some more money burned in premiums. In average case you save some lacs of rupees in treatment costs.
8. In best case you have ~30 lac additional cash after 10-12 years or proportionally before and after. In worst case you are looking at a lot of debt. In average case you would save some lacs of rupees, but lose out on some cash early on in life and delayed big ticket expenses.
A lot of calculations are hand wavy but preserve the essence. I know this doesn't make sense for a lot of people, it is essentially for people who earn well and can control their spending for few years. It also assumes that health insurance and health industry is majorly a scam.
It might also make sense to do both in smaller volumes (some hybrid). I guess for a particular range of sum-insured it might make more sense than for other (probably higher) range of sum-insured.
Seeking relevant criticism, correction and points in support I missed.
- A typical health insurance for 10-20 lac base cover for parents (2x 55+ YO people, generally healthy) No room limit, no co pay costs about 35-60K per annum (which will increase overtime, with some 2+ year waiting period for pre-existing diseases). For 20s-30s people it would be about 25-30K per annum.
- Given so many stories of cheating and fraud by hospitals (inflated bills for insured persons, deliberately extending treatments and unfair/hidden costs etc) and insurance companies ( turning down genuine claims citing frivolous reasons, opaque T&C clauses, raising premium every year without justifications etc), does it really make sense to pay that much if I can just put extra money early on in my career aside (say 15 lac in FD, accumulated asap or over 4-5 years) and get away from all this trouble?
I know not everyone can afford or even earn this much to just keep this amount aside, this is not for them anyway (I am talking about people earning 15-20+ lpa and no dependents, generally good health, ain't living too lavish lifestyle).This might require pushing other big purchases down the line, along with keeping some extra money aside for emergencies (2-4 lacs). But if done you have effectively created a fund which gives about 6-7% returns, is extremely liquid and accessible no questions asked and is yours even if not used and gives the same cover as the insurance.
I compared these two here.
(Strictly for healthy people with healthy lifestyle earning above 20 LPA with no big ticket purchases in next 3 years like marriage, house, foreign education etc):
Health Insurance - 15 Lac Sum Insured, checks all required boxes
Health Emergency Corpus - 15 Lac - FD
1. 20K/55K per annum to cover you/your parents respectively.
1. Depending on individuals' exact income and saving rate, lets assume 2.5 Years of saving 50K per month.
2. Covers the person for 15 Lac "qualifying" health expenditure after 30 days or 1/2/3 years for pre-existing disease.
2. Covers the person for 15 Lac all kind of health expenditure after ~2.5 years. Essentially the faster you save the more quickly and for more sum you are covered.
3. 10% chance you may not receive it despite paying premiums for years. 20% chance you might only receive a part of it. 50% chance you might never need it.
3. Bank might default, but likelihood is negligible for big banks. Money is yours if not used.
4. Premiums will increase with age, medical inflation is 14% so sum assured needs to be increased, which will doubly increase the premiums.
4. Same issue, but will at least generate 6% returns (the returns are taxed at 30% though) that is roughly 60K per annum for 15 Lacs. Increase the saved amount as per you income.
5. No claim in an year = money paid is essentially lost ; Stop premiums even once = reset probation period ;
5. Money stays with you, compounds as well. There is additional over-drafting facility for temporary needs.
6. Break-even period is about 16 Years assuming if you invest the same amount in nifty in SIP format at 12% return rate. This is essentially why insurances make sense . But given that in case of no-claim you are staring at a loss of 30lacs (Premium paid + interest lost).
6. Any full-claim during the build-up phase might put you in debt (20% personal loan), in case you cannot work after that you are looking at a very bad situation. Any claim between post buildup to next X year means you stand to lose roughly (15 - 1.5X ) lacs ; I got this figure by assuming 15 Lac FD would be generating roughly 1Lac per annum and at the same time the insurance premium would be roughly 0.5lac per annum, cancelling out income tax and tax benefits. BUT, any balance amount after claim will lie undisturbed, unlike the insurance premium paid.
7. Money secretly leaves your bank, leaves you with more disposable income.
7. Psychologically difficult to process a lumpsum 15 lac outflow in case of a claim. Post build-up phase leaves you with a more reliable and flexible emergency fund.
8. In best case you lose money paid in premiums, in worst case you are looking at a lot of debt and some more money burned in premiums. In average case you save some lacs of rupees in treatment costs.
8. In best case you have ~30 lac additional cash after 10-12 years or proportionally before and after. In worst case you are looking at a lot of debt. In average case you would save some lacs of rupees, but lose out on some cash early on in life and delayed big ticket expenses.
A lot of calculations are hand wavy but preserve the essence. I know this doesn't make sense for a lot of people, it is essentially for people who earn well and can control their spending for few years. It also assumes that health insurance and health industry is majorly a scam.
It might also make sense to do both in smaller volumes (some hybrid). I guess for a particular range of sum-insured it might make more sense than for other (probably higher) range of sum-insured.
Seeking relevant criticism, correction and points in support I missed.