The Insurance Gap
While health insurance serves as a primary safety net, it's crucial to recognize that it doesn't cover every medical scenario. Many costs, particularly
those incurred outside of hospitalization, remain uncovered. Think about routine doctor visits, ongoing medication for chronic conditions, or diagnostic tests, which can accumulate significantly over time. Furthermore, situations where hospital bills exceed your insurance sum assured, or when cashless facilities aren't immediately available, can leave you financially exposed. This is where a dedicated medical contingency fund becomes indispensable, acting as a vital secondary buffer to address these specific financial pressures and ensure your overall savings remain intact.
Fund vs. Insurance
It's a common misconception that a medical contingency fund replaces health insurance; instead, it's designed to complement it. A key distinction lies in their replenishment. Health insurance policies typically reset their sum assured each year upon renewal, regardless of claims made in the prior period. For instance, a Rs. 10 lakh policy will offer Rs. 10 lakh again next year, even after a Rs. 7 lakh claim. Conversely, a medical contingency fund, once depleted, doesn't automatically refill. If you used Rs. 7 lakh from a Rs. 10 lakh contingency fund, only Rs. 3 lakh would remain for subsequent needs. Therefore, the fund acts as a personal savings pool for medical expenses that fall outside your insurance coverage, whereas insurance is your initial line of defense.
Sizing Your Buffer
Determining the right size for your medical contingency fund is key. For individuals over 50, a recommended health insurance cover ranges from Rs. 20-25 lakh. As a general guideline, your medical contingency fund should ideally be at least 50% of your health insurance cover. This means aiming for an additional buffer of Rs. 10-12.5 lakh if you have a Rs. 20-25 lakh policy. It's advisable to build this corpus gradually rather than all at once. While newer strategies like combining base health plans with super top-ups can offer higher sum assured, such as Rs. 1 crore, the 50% rule might lead to an excessively large buffer. Prudence suggests tailoring the fund size to your specific needs and risk profile.
Strategic Corpus Building
The optimal time to start building your medical contingency fund is in your mid-40s or as you approach your 50s, but it's also relevant if you have aging parents. This fund doesn't need to be established instantaneously; a consistent, modest monthly saving, kept separate from other financial goals, can create a substantial buffer over a few years. For example, an investment strategy could involve allocating 50% to debt/equity savings funds and the remaining 50% to aggressive hybrid funds. This approach can be systematically implemented through a health-centric Systematic Investment Plan (SIP). This proactive savings strategy ensures you are not solely reliant on health insurance, especially in later decades when medical needs tend to increase.
Innovative Savings Avenues
Emerging financial tools are also aiming to facilitate medical savings. India has seen pilot projects, such as the 'NPS Swasthya Pension Scheme,' inspired by models like the US's Health Savings Account (HSA). These initiatives explore a contributory approach to health-linked products, essentially functioning as investment vehicles to build a medical corpus. While such experiments show promise, their effectiveness hinges on smooth operational oversight and timely withdrawal access during emergencies. Beyond these specialized schemes, leveraging mutual funds remains a viable and accessible method for individuals to independently build a dedicated contingency fund for unforeseen medical expenses, ensuring financial resilience.
