Any health crisis is a potential financial crisis.
One of the thoughtful perks an employer can provide to their employees is the Health Insurance cover.
It is a wonderful way of saying “you are a valuable resource to us”.
But, ask yourself.
Does it fit into your financial plan?
Is it foolproof, so that your financial plan doesn’t crumble in crisis?
Will it stand the test of time?
The answers are debatable.
Let us consider two different scenarios where your financial plan with employer-provided health insurance will leave blind spots.
- Scenario 1: The Unemployment Phase
- Scenario 2: Retirement
Scenario 1: The Unemployment Phase
We are a generation that is always on the look-out for betterment, for new challenges.
How long do you think you will stay at your current job?
And as you leave your job, so does the health cover provided by your employer.
Even though the opportunities are abundant, the time taken to find the right job is unpredictable. It is this window where you will have no active source of income and will be without a health cover.
If anything has to happen to your health during this period, it could result in the collapse of your entire financial plan.
Imagine: you are planning to move on to a better paying job which also has a great scope for growth.
You have been planning for this next step in your career for almost a year. Your planned resignation is in 1 month but you are diagnosed with an acute critical illness today.
What would you do?
Would you change your decision; seeing that your health cover will cease once you resign from your current job?
What would happen if the diagnosis comes a little late?
You have already left your job and in the process of applying for jobs in the said position. And then you get to know the bad news about your unfortunate illness.
It is quite obvious you will be living off your emergency fund—A fund that is accounted for only your expenses of a few months.
If you spend your emergency fund on medical expenses, you will be forced to cash your investments for living expenses.
Just in case, if you end up with a temporary disability or requirement of extended medical care, it will be the worst-case scenario. You will have no other choice but to siphon out your investments.
What if I tell you, you can avoid this potential financial plan collapse by employing an optimal health insurance strategy?
But before we jump into the solution, let us also consider the other scenario that threatens your health insurance plan.
Scenario 2: Retirement
Retirement is not much different from what we have seen above. It is a delayed job loss.
The default paradigm is that,
“I will have my employer-provided health insurance until retirement and then get one”
Unfortunately, not many realize that it is cheaper to get a health cover now than at retirement.
Let’s take the story of Ranjith.
He is a 30-year-old product manager in a Chennai based company.
Ranjith has a health insurance cover provided by his employer. And like everyone else, Ranjith decided to get individual health insurance close to retirement. Since, from his perspective, any premium paid towards individual health insurance premium is a “waste of premium” while you still have employer-provided health insurance.
But Ranjith is not exactly like everyone else. He is quite smart.
His idea was to buy an individual health insurance cover two years before retirement so that he won’t have to spend the waiting period without any health cover.
Smart. But not quite enough!
But it’s fine. Everybody makes mistakes.
However, when smart and proactive people like Ranjith make any mistakes, it not only affects them but also anyone who admires them. The impact will be greater.
What did Ranjith miss?
Or so to speak in general,
What are the III-effects of Getting Health Cover at Retirement?
- Not taking into account that it is not as easy to get a health cover at the age of 60 when health issues begin to appear.
- The insurance premium will be much higher for older people who are prone to health issues.
- Even if one manages to get a health cover, the pre-existing health conditions will not be covered.
- If one wants the pre-existing health conditions to be covered under the policy, there will be an additional waiting period.
- Any premium “saved” by getting an individual health cover only at retirement will be nullified by the higher premium he will be paying.
- The policies taken with pre-existing health conditions also carry the risk of losing claim eligibility for a new illness if it was caused by a pre-existing illness.
On the superficial level, Ranjith’s take on having a health cover might have looked like a brilliant strategy to save some money.
But if you look at all the complications and risks it brings along, it is not worth it.
Optimizing Your Health Insurance Plan
Imagine seeing the financial freedom in your hand’s reach but only to let it go because of a health issue.
Imagine developing an investment discipline over years, even decades yet making it ineffective because of poor risk management in your financial plan.
It isn’t much pleasing, is it?
Certified Financial Planners’ recommendation is to implement a parallel cover strategy that ensures you sufficient health cover even when your employer-provided health cover fails.
“Give your employer-provided mediclaim policy a backup with an individual mediclaim policy.”
It is much easier and economical to get one when you are young and healthy.
I can hear you saying: “This is your brilliant solution? Buy a new health insurance policy?”
But let’s not looks for the brilliance of a solution but its effectiveness.
Here is the list of things this health insurance strategy will offer you by the time you retire:
- Health Cover at all times.
- No need for a health check-up to get health insurance at retirement.
- No unfair increase in premium due to pre-existing illness.
- No waiting period for any existing illness at retirement.
- No risk of losing the claim eligibility due to pre-existing illness.
Initially, the sum insured of your mediclaim policy can be relatively low.
Let your No Claim Bonuses add up to the sum insured and compound over the years since it is very unlikely you’ll initiate a claim in the initial years. It will take care of your premium optimization.
If necessary, top-up your mediclaim policy as needed when you retire. You shall rest assured it will stand the test of time.
Words to Remember
Your health insurance policy is an integral part of your financial plan.
We all know how easy it is to be misled by misinformation in today’s world. Any mistake here will prove to be too costly.
Never settle for a health insurance plan that appears to be good on the surface level. Do the research yourself and find out what suits best for your financial plan.
When necessary, you may also reach out to professional Certified Financial Planners for help.
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