I recently met a couple in their early 60s and they did not have any medical insurance. I was a little intrigued because they are they typical – government job, security, etc. worrying types and they had enough money to pay the premia. So why would they not have medical insurance?

The husband asked me ‘how much premium do you pay per year?’ – and I said about Rs. 23k for myself, wife, daughter and my mother. His argument was ‘if you had done an SIP for that amount over the past 12 years you would have ENOUGH corpus to pay for a medical emergency’ so why waste money on a policy. Good question.

When you take an insurance policy, you are transferring the risk from your head to an insurance company for a premium. Large insurance companies use statistical tables to estimate the risk that me (and my family) represent and price it accordingly. On my own paying for all my medical / health hospitalisation expenses I may not be able to even arrive at an amount that I should set aside for such an eventuality. Many businesses to like to keep the risk to themselves – but they may shortchange an employee and not pay for any health related expenses! For an individual what are the risks of risk retention?

  1. Ability to estimate risk is NIL. We have no clue from where an emergency can arise. It could be you 88 year old father falling in the kitchen to your 22 year old daughter needing hospitalisation for depression. Stop acting like God. You have no clue what the next moment has in store for you.
  2. You may be prepared for a heart attack but not for Cancer: cancer costs can cripple and last over a few years. It might involve a lot of testing over a 5 year period. This might hurt your portfolio far more than a medical premium. Fire accident is something for which we can NEVER be prepared for..you could spend Rs. 20L in a day or two.
  3. You cannot change your mind post 60: Post 60 if you decide to buy insurance, it may not be available at all, or may be available for a very small amount, making it useless.
  4. You may not be the greatest fund manager: If you are very conservative you might save money in a tax inefficient bank fixed deposit, and if you are aggressive you may be in penny stocks. If it is a bear market, your penny stocks may not even get the pennies that you put into it! So please stop overestimating your fund management skills.
  5. It might erode your finances at a rate much faster than what you thought possible.

I am not against risk retention nor against taking medical insurance. I do think the Householder’s policy is a waste of money – at least for me – I will be able to buy a fridge, tv, laptop and mobiles whenever I want. I do not think these things have any resale value at all.

However, I am comfortable with a Rs. 5L medical cover for myself, a Rs. 5L floater for my family, and a Rs. 10L top up medical insurance from the same company.

Not that I cannot afford the medical expenses if i were to have a heart attack, but that my asset allocation and cash flow allows me to have this policy. However, all my life insurance policies have been done away with except for a Rs. 5L cover which gets over only when I am 65 years of age. Hopefully my funeral expenses will be below that !!

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  1. sir i want to add my views on risk regarding your post

    you can transfer the risk or retain the risk or reduce the level of risk
    each option comes with its own risk and severity of impact

    by mediclaim you are transferring your risk but risk is claim being rejected

    by building corpus you are retaining the risk but you say risk is cancer

    if you consider probability of cancer (very very low)vs claim rejection (comparatively higher) and severity impact (cancer higher, mediclaim – lower than cancer) together (expected value = probability into severity) you get the relative levels of risk involved in transferring or retaining

    so your risk tolerance may like risk transfer but the couple’s risk tolerance like retaining the risk

    nothing wrong with what they did i would say

  2. Sir, nice article. Thought provoking.

    I am a regular and avid reader of your blog. Thanks for sharing your knowledge and experience with all of us.

    Since we are on the topic of medical insurance, if i have a very good, company paid, medical insurance for my family and dependant parents, is there any point in going for personal medical insurance? I ask because the policy premium goes up every year based on your current age anyways. It is unlike life insurance where premium remains steady for the duration of the term insurance policy.
    So effectively, the only advantage is that on retirement/change of company, i won’t need to go through the 2-4yr wait period before the policy protection fully kick’s in.

    Am I right in thinking so?

  3. @Pallavi – i am replying because you mentioned dependent parent. What if you change jobs or due to recession lose your job or travel overseas and Join a foreign company!
    I can tell you my situation, my employer provided excellent low cost coverage for me and my parents in India. I traveled to USA through this employer and coverage for my parents still continued. After 2 years i quit this India based MNC and joint a local USA based company. My parents lost their insurance cover provided by my India based employer. Luckily my parents are still below 60 years age and i could find them a Insurance provider.
    Basically getting an health insurance policy even if it provides low coverage initially (since you already have employee provided cover) from some insurance company builds your no-claim history and bonus with them and is very useful if parents are dependent.

  4. @Ravi – Thanks for your reply. I will need to read up more on the no-claims bonus etc aspects to understand this better. I wasn’t sure if any no-claims history had any impact on the policy in the long run.

  5. The biggest risk in health insurance is the insurance company increasing the premiums absurdly. My parents took a Family floater Health insurance from ICICI before 4 years. After paying premium for 4 years (& when all illness are getting covered) ICICI increased the premium by whooping 250% and my parents didn’t made a single claim in these 4 years. Previously there are 4 plans and now ICICI merged all of them into one. ICICI informed us regarding this only one month before renewal, so we also didn’t have option to port out & getting port out to another operator in this age is difficult.

    Now can I trust this ICICI by having an insurance with them further. What is guarantee it stops them from further raising premiums after 4 years and it will be next to impossible to port out for elders due to their age or what’s guarantee if some other elders fallen to some perennial diseases (like cancer) and these cheats denie renewal. They can show some silly clause or introduce a new one.

    I went to my local ICICI insurance branch and demanded an explanation of increase in premium. The local staff are no more then data entry ppl and try to explain me that they can’t help and I had to write to HIGHER AUTHORITIES. Even their Customer care are clueless and said this is decision by HIGHER AUTHORITIES.

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