By Nehal Mota
If you thought that medical insurance was all you needed, think again. It may be wise to create a medical emergency fund. There are several reasons. In an emergency, the nearest quality hospital may not be empanelled with your health insurer. In such cases, you have to pay upfront and then claim costs.
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Second, you may have exhausted the limit on the family floater due to multiple usages in the year. Third, you pay several expenses outside the ambit of the health cover. There may be a co-payment or deductibles clause in your health cover, which means you share part of the hospitalisation costs. How would you take care of such extra costs?
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Create an emergency fund equal to five to six months of current income. This is a generic emergency fund, so medical emergencies are just one of the purposes.
Medical emergency fund out of tax breaks
Let us say, you have medical insurance for your own family as well as for your parents, who are senior citizens. You utilise the full limit of Rs 75,000 per year (Rs 25,000 for your family and Rs 50,000 for your parents). If you are in the 30% tax bracket, your effective tax liability is 31.2%, including cess. On Section 80D exemption for Rs 75,000, you get Rs 23,400 as tax relief. That is like an income flow each year. If you invest this Rs 23,400 a year (or Rs 2,000 per month) in a hybrid fund SIP giving 10% per annum, then it grows to Rs 4.03 lakh over 10 years. That is a solid corpus to start with as a back-up to mediclaim.
Power of add-ons
In India, health cover is treated as non-life cover; distinct from life insurance. However, they converge on riders. Today, when you buy a life insurance policy,
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