The Insurance Gap
While health insurance serves as a vital safety net, it often falls short in covering the full spectrum of medical expenses during retirement. Unexpected
treatments, co-payment clauses, policy exclusions, and even delays in cashless claims can leave individuals exposed to significant out-of-pocket costs. Furthermore, as individuals age, health insurance premiums tend to rise, adding another layer of financial pressure. Recognizing these limitations, the PFRDA has initiated the NPS Swasthya Pension Scheme, a pilot project mirroring the US Health Savings Account concept. This initiative underscores the growing awareness around the necessity of building a dedicated corpus specifically for medical needs, suggesting a proactive approach to financial planning for healthcare beyond standard insurance policies.
Establishing Your Fund
Creating a medical contingency fund is about building a separate financial reserve, distinct from your general emergency fund, to act as a secondary layer of protection. This fund can be cultivated over time through consistent and disciplined investing. Even modest regular contributions, when invested wisely, can accumulate into a substantial sum. For instance, investing Rs 5,000 monthly at an 8% annual return could yield approximately Rs 9.2 lakh in a decade. The same investment at a 10% return could grow to Rs 10.3 lakh over the same period. Increasing the monthly investment to Rs 10,000 at 8% could generate around Rs 18.4 lakh, while at 10%, it could reach Rs 20.7 lakh. These figures highlight the power of compounding and the advantage of starting early to maximize these benefits. It's crucial to remember these are illustrative examples and actual returns may vary.
When to Use It
This dedicated medical fund proves invaluable in numerous scenarios where health insurance might be insufficient or inapplicable. It can cover treatments that are exceptionally expensive or not fully covered by your policy, including outpatient department (OPD) expenses that often slip through insurance nets. When hospital bills escalate beyond your insurance coverage limits, this fund provides the necessary buffer. It's also a lifeline when cashless claims face delays, ensuring immediate access to funds for critical care. Moreover, it can help manage the increasing cost of health insurance premiums in later years and cover expenses mandated by co-payment clauses or policy exclusions, thereby offering comprehensive financial security for your healthcare needs throughout retirement.
Adequate Coverage Target
For a couple aged over 50, a robust health insurance coverage of Rs 20–25 lakh is generally recommended to address potential medical exigencies. However, simply having this insurance is not enough. The medical contingency fund should ideally be built to be at least half of this insurance cover. This translates to an objective of accumulating an additional buffer of Rs 10–12.5 lakh over time. This secondary financial cushion ensures that even if insurance covers a significant portion, there are ample funds available for any remaining costs, deductibles, or treatments that fall outside the policy's purview, providing true peace of mind for your retirement years.
