Individuals, while conducting their tax planning exercise for the year, should always keep in mind their financial objectives. One objective should be to insure themselves against any unforeseen medical/health expenses.
A medical/health insurance policy helps in achieving this goal. This note explains what the policy is and how it proves to be useful while carrying out the financial as well as the tax planning exercise.
Simply put, a health insurance policy, also popularly known as 'Mediclaim,' helps an individual cover the expenses incurred due to an injury/hospitalisation. Not only does it cover expenses sustained during hospitalisation but also during the pre- as well as post-hospitalisation stages.
An added attraction of these policies is that the individual gets certain tax benefits, which are separate from the Section 80C benefits available on traditional tax-saving instruments. An illustration will help in understanding things better.
Medical insurance: Small costs, huge benefits
|
|
Age (Yrs) |
Amount to be insured (Rs) |
Annual Premium (Rs) |
|
United India Insurance Co. Ltd |
30 |
200,000 |
2,469 |
|
New India Assurance Co. Ltd |
30 |
200,000 |
2,720 |
The premium quotes are as shown on Web sites of the respective insurance companies.
Taxes as applicable may be levied on the quotes given above.
Individuals are advised to contact the insurance companies for further details.
Let us assume that an individual aged 30 years, wants to cover himself for a sum of Rs 200,000. As the table shows, if he decides to buy a Mediclaim policy from United India Insurance, the annual premium for the same works out to approximately Rs 2,469 per annum.
Conversely, if the policy were to be purchased from New India Assurance, other factors remaining the same, the premium the individual would have to pay would be approximately Rs 2,720 per annum.
In case the individual has to undergo hospitalisation due to an injury/accident, then the expenses incurred by him will be covered by the policy. The cover will be to the extent of the sum insured.
In this example, the insurance company will pay for expenses up to Rs 200,000. This cover will also include pre and post hospitalisation expenses like money spent for conducting medical tests and buying medicines.
Of course, the payment will be subject to certain conditions. For example, the insurance company will want the individual to undergo treatment from a hospital that has a tie-up with the company. Also, the insurance company will ask for all the necessary documents pertaining to the hospitalisation charges, the medicines bought and other related papers.
Mediclaim policies attract tax benefits under Section 80D. Deduction under this section is available if the premium is paid by cheque. The maximum amount of deduction available under this section is Rs 10,000.
This limit stands enhanced to Rs 15,000 in case an individual is a senior citizen. Tax benefits are also available in case individuals pay for their parents and children who are dependent on them.
A host of added benefits are also available on Mediclaim policies. If suppose, an individual continues to buy a Mediclaim policy from a certain company and has a claim free year, then the company increases his sum insured in the next year. Alternatively, some companies reduce the premium charged to the individual. Most companies also give a discount on the premium being charged in case individuals want to insure their entire family.
Individuals also have the option of covering themselves for medical expenses by opting for the 'Critical Illness (CI)' rider available with life insurance policies. Life insurance companies have their own list of critical illnesses as defined by them.
If an individual suffers from an illness that is defined by the company in its list of critical illnesses, then he stands to benefit by way of this rider. Section 80D benefits are available on such riders as well.
However, medical insurance differs from these riders in one key aspect. In case of a CI rider, on the occurrence of a 'critical illness' during the policy tenure, an amount as proposed in the policy will be paid out to the individual.
This is irrespective of the expenses incurred by the individual on hospitalisation, medicines and other such costs. As opposed to this, in case of Mediclaim, the individual is covered only to the extent of the actual expenses incurred subject to the maximum limit as defined by the 'sum insured.'
Medical insurance has also seen a lot of innovation being brought in with the passage of time. Nowadays, you have 'cashless hospitalization.' This is where individuals do not have to pay for their hospital bills in case of hospitalisation; the insurance company settles the bill directly.
Of course, certain conditions like those already mentioned earlier have to be met- the hospital needs to have a tie-up with the insurance company, the documents need to be in order and so on. Some companies also offer what they call 'floating cover' which can be best understood by an example.
Under a floating cover, an individual can either cover himself for say, an amount of Rs 300,000 or cover his family of say 3 individuals, for Rs 100,000 each. This again, will be subject to the conditions laid down by the insurance company.
However, what needs to be understood is that individuals have a wider choice now with more general insurance companies entering the fray.
With the costs associated with medicine and medical treatment having gone up, individuals need to plan their finances better. They shouldn't be caught in a scenario where they are staring at a huge medical bill and haven't planned for it.
That apart, although they might have the money at that point in time, their long term financial planning might go awry. It is in such cases that medical insurance proves its worth all the more.
All said and done therefore, a medical insurance policy should always form a part of any individual's financial planning as well as the tax planning exercise.