Based on some estimates, the annual healthcare inflation is in the range of 15–25%. In the absence of health insurance, a serious illness in the family can cause tremendous financial distress.
Assume a 30-year old has a monthly savings of Rs 25,000. Due to an unfortunate illness in the family, she incurs a medical expense of Rs 5 lakhs, which she pays for with her savings. It will take her almost two years to build that amount back, assuming no major unforeseen expenses in the interim.
If she had an insurance policy with a sum assured of Rs 5 lakhs, she would not have to touch her savings. Instead, that amount could grow to Rs 1.5-3 crores by the time her retirement at the age of 60 (assuming a compounded annual return of 12-15%). In effect, if she did not have a health insurance policy, she would give up Rs 1.5–3 crores at retirement.
Her medical insurance would have come at an annual premium of around Rs 5,500 - for a sum assured of Rs 5 lakhs. Had she saved the premium instead, at the time of retirement, it would have grown to Rs 13-24 lakhs. (Rs 5,500 invested every year in assets yielding a compounded return of 12-15%). In effect, if she had a health insurance policy, she would give up Rs 13–24 lakhs at retirement.
It is a no brainer. Medical insurance makes great financial sense for the policy holder.
The tax benefit
Health insurance premium (for self, spouse, dependent children) of up to Rs 15,000 is eligible for deduction from gross taxable income under Section 80D of the Income Tax Act 1961. The deduction is Rs 20,000 for senior citizens.
If an individual pays for medical insurance of parents who are senior citizens, then he or she can claim an additional maximum deduction of Rs 20,000. However, if the parents are not senior citizens, then a maximum of Rs 15,000 can be claimed as additional deduction.
Therefore, the total amount of deduction an individual claim for medical insurance for self, spouse, dependent children and parents is Rs 30,000 if the parents are not senior citizens, and Rs 35,000 if the parents are senior citizens.
This text has been taken from a post written by Dwaipayan Bose that appeared on Advisorkhoj.com
