'Healthcare costs in India rise by 10% to 14% annually, causing treatment costs to double roughly every 5-7 years.'
While more people buy health insurance now, it does not fully protect households from rising healthcare costs.
Expenses not covered by a normal hospitalisation policy often force families to pay a significant amount from their own pockets, which makes the building of a dedicated health corpus critical.
A health corpus is a dedicated pool of savings meant only for medical expenses.
An emergency fund covers all kinds of financial shocks, such as job loss, repairs, and other sudden expenses.
"While an emergency corpus is usually 6 to 12 months of expenses kept in highly liquid instruments, a health corpus is built around factors like age, dependants, health risks, and insurance gaps," says Arun Ramamurthy, co-founder, Staywell.Health.
- You can post your health insurance related questions HERE
Key Points
- Health insurance policies often leave families paying significant medical expenses from their own savings despite having coverage.
- Experts say a dedicated health corpus helps cover uninsured costs like consumables, travel, co-payments, and exclusions.
- India's healthcare inflation of 10 to 14 per cent annually sharply increases long-term treatment and hospitalisation expenses.
- A health corpus prevents premature withdrawals from retirement funds, mutual funds, and other long-term wealth-building investments.
- Financial planners advise prioritising liquidity and safety while building a separate corpus exclusively for healthcare emergencies.
Why health corpus is a must
India has among the world's highest out-of-pocket healthcare spending ratios, with households directly bearing nearly 39 to 47 per cent of total medical costs, according to National Health Accounts data.
Even insured families often face large uninsured expenses, such as consumables, room-rent limits, co-payments, travel, attendant's costs, and treatments excluded under policies.
"Waiting periods for pre-existing diseases and limited coverage for mental health or fertility care add to the burden," says Ramamurthy.
Advanced treatments, such as robotic surgery and immunotherapy, are often not covered or have sub-limits.
Medical Inflation Risks Rise
High medical inflation is another reason to build a health corpus.
"Healthcare costs in India rise by 10 to 14 per cent annually, causing treatment costs to double roughly every 5 to 7 years," says Ramamurthy.
Protect long-term investments
A health corpus protects long-term investments by preventing forced withdrawals during medical emergencies.
Without it, families may have to redeem equity investments, dip into retirement savings, or take costly loans.
"Even a temporary withdrawal from mutual funds or Employees' Provident Fund can significantly reduce future corpus growth," says Ramamurthy.
Decide the right corpus size
The size of a health corpus should depend on factors such as age, dependants, city of residence, family medical history, lifestyle, insurance coverage and income stability.
"Someone with greater family responsibilities or living in a metro may need a larger buffer," says Sanjiv Bajaj, joint chairman and managing director, Bajaj Capital.
A health corpus should not replace health insurance as they serve different purposes.
Insurance protects against large, unexpected medical costs, while a health corpus provides liquidity for uncovered expenses.
"Relying only on self-insurance can be risky, especially in old age when healthcare costs rise sharply. Both should work together," says Bajaj.
Some people may have to rely more on a health corpus, especially if they buy insurance late, have serious pre-existing illnesses, or face very high premiums in old age.
"Relying entirely on self-funding can strain retirement savings and family finances," says Bajaj.
Choose safety and liquidity
A health corpus should prioritise safety and liquidity over high returns.
In the early years, investors may consider limited equity exposure.
Over time, they should shift the corpus to stable instruments such as liquid funds and fixed deposits.
"The purpose of a health corpus is not to maximise returns, but to ensure that medical emergencies do not force panic-driven financial decisions," says Sanjeev Govila, certified financial planner and CEO, Hum Fauji Initiatives, a financial advisory firm.
Do not mix the health corpus and the emergency fund.
"Another common error to avoid is keeping the health corpus in illiquid investments," says Govila.
Crucial at all life stages
- Young individual (25 to 30) having cover: Needs health corpus to pay for deductibles, non-medical expenses, consumables, recovery expenses.
- Young couple (28 to 40) with floater: Potential maternity-related costs not always covered by insurance.
- Senior couple with cover: Sub-limits on room rent and ICU; exclusions for pre-existing diseases; chronic diseases.
- Senior couple without cover: Must self-fund all hospitalisation costs.
- Cardiac, orthopaedic, and oncology procedures can cost Rs 5-20 lakh per episode.
Source: Staywell.Health
- You can post your health insurance related questions HERE
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Feature Presentation: Ashish Narsale/Rediff
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