How to Budget for Healthcare
There is a perception that having health insurance is sufficient since it covers you against all medical emergencies. While this is largely true, certain points need to be understood well.
Health insurance is a necessary but not a sufficient steptowards financial independence. Financial independence comes from sourcing your own money rather than borrowing from your friends and relatives in an emergency. Medical emergencies as most will testify can be extremely expensive.
Health insurance policies are for a defined amount referred to as the sum assured. The sum assured is effectively the ceiling and if the cost of treating the illness exceeds the ceiling, the individual has to provide the surplus from his end.
Moreover, the health insurance policy does not cover pre-existing illnesses. Cost towards this must also be met by the individual from his own sources rather than the insurance policy. So having a budget for health-related problems and a health policy for family is very important which will prove useful not just for the individual but even his parents, children and other dependents.
Let us take Rahul, a married professional in the financial services segment. His monthly income is Rs 50,000 with expenses accounting for Rs 25,000. He is looking at building an emergency fund that covers 6 months expenses. So the size of his emergency fund should be at least Rs150,000, which he can accumulate by setting aside a fixed amount –say Rs 15,000 every month over the next 10 months.
This fund must be exclusive for medical emergencies. Rahul can set up similar funds for other contingencies like loss of job, house repairs and so on.
Rahul must keep the money as liquid as possible to enable ready withdrawal. Some options are liquid funds, short-term debt funds or short-term bank fixed deposits.