Are you ready for your old age medical expenses? Think Again !!

Applying an analogy of a human body is a machine. it does get old and parts to loosen out. Unfortunately its not that simple to replace any part or buy a new body altogether, not only the trauma of a surgery but the quantum of medical expenses can literally be quite a pain.

If we are still in the same old frame of mind that once we have bought health insurance in the form of a mediclaim, we are safe from the financial impact of any illness or accident we need to be brought to face the reality.
The rate at which the costs of medication has been rising coupled with the ever increasing propensity of us to fall ill arouses the immediate need of an old age medical contingency fund to be into place.

Whenever I meet clients we discuss their current medial insurances' sum assured, I get a couple of similar answers either they are partly covered by their employer or they have some medical insurance bought on their own. Nor do they know the coverage factors and the exclusions of that insurance policy. neither do they understand that an adequate amount of sum assured along with a policy that covers maximum illnesses and has least exclusions and sub-limits is critical.

An employer sponsored insurance is a good option as no premiums need to be paid, but incase of a job loss or a shift of jobs that cover ceases to exist and then buying a new insurance can be relatively more expensive.

Though a floater policy that covers all the members of a family up to the amount of sum assured is an acceptable policy for the young earners but as we age each individual needs a separate policy so that they can benefit from the complete amount of sum assured. in an individual policy the premiums are applicable as per their individual ages rather than the age of the eldest member like in a the case of a floater policy.

Lets take an example of Mr. X who has a sum assured of Rs. 300000/- for himself. Though he might feel that he is adequately covered against medical contingencies he does not realise that moving on after 25 years this sum assured would cover for illness and treatment expenses of not more than a value equivalent of Rs. 30,000/- today. So speaking in terms of real value numbers to treat an illness that costs Rs. 3,00,000/- today he will have to pay Rs. 32,50,000/- after 25 years. This is by assuming an inflation rate of medical expenses at 10%. This is how bad is the impact of inflation on your medical bills. A cover of Rs. 3,00,000/- today becomes worth Rs. 30,000/- after 25 years and to get the same value of today's Rs. 3,00,000/- you will have to shell out Rs. 32,50,000/-. And as per my knowledge medical inflation costs can be quite higher than 10% too.

Not only does the value of your sum assured falls, your premiums also increase with age. Insurers have age bracket slabs which are used in calculating insurance premiums. Varying from insurer to insurer the slabs could be age 25-30, 30-35, 35-45
and so on . Every time you move on to a higher age bracket your insurance premium is increased by quite a bit.

So in all you as you get older you are paying more and more for a policy that is protecting you for a value that is decreasing every year. This is not a wise step in your financial plan.

Your planner should advise you on creating n old age medical fund . Its value should be an amount that is atleast equivalent to the value of today's Rs. 3,00,000/- at the time when you retire. The rate at which it increases would be based on your assumed medical inflation rate, which according to me should not be less than 10%. This value is called the future value of your Medical contingency fund.

Now as you know the value that you need to build over your working life your planner would guide you on the strategies needed for the deployment of your savings into an appropriate channel. If your retirement is at least 10 years into the future then a major portion of this should be equities and other risky assets, this is because we have the time horizon that is sufficient to manage the volatility congruent with the equity markets. This is because the return potential of equities is paramount in achieving our aim of beating the high rate of medical inflation.

This fund will need a regular revaluation and asset reallocation as the goal nears. This investment strategy can ensure that you are well prepared for the ultra high medical expenses that can arise as we age. This fund keeps you covered to the true value of today's medical expenses when you retire and also saves you from paying unnecessarily high premiums for a cover amount that doesn't cover you in the true sense.

Cheers & Happy Planning.
Think before you act as
'Its all in the Mind.'