When I look at the financial plans of most families, life insurance is almost always present, as it should be. Unfortunately, health or medical insurance is ignored or dismissed as a wasteful expense. This is because most people don’t give much thought to eventualities like accidents or disabilities that can render them without a source of livelihood. They understand that lack of life insurance can lead to the drying up of a source of income. What they must begin to understand is that the absence of adequate health cover could result in the wiping out of existing savings.

With health-care costs rising inexorably, even a minor accident can set a budget back by several thousand rupees. That’s why I advise my clients to keep aside a couple of months’ expenses as an emergency fund to create a self-insurance plan. However, not every family can afford to put away Rs 1 lakh or more to cover a hypothetical risk. That’s why health insurance is such a necessity. Reducing or eliminating the need to keep large sums in a lowinterest, high-liquidity emergency account, it allows you to invest in remunerative intruments.

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If you don’t have an emergency fund and no medical insurance, any major illness could cripple your entire financial plan. Take, for example, a person who has sufficient life insurance coverage (but no medical insurance) and has been planning an early retirement.

Assume that this person has Rs 50,000 available as cash and a further Rs 1 lakh if he liquidates his retirement savings. If he falls ill and has to be hospitalised and the medical bills come to Rs 1.5 lakh, it means an end to his plans of an early retirement. If the bills come to more than that, it could ruin his entire financial plan.

Now assume that this same person had a good medical insurance plan in place, along with a life cover and retirement plan. Even if his illness requires long-term healthcare, his other finances will not be hit. For instance, if he needs dialysis—a recurring ordeal requiring regular payment—his health plan will allow him access to quality medical care without creating an additional financial burden.

It’s important that people should realise the benefits of a complete financial plan. Medical insurance is only one aspect though some people think that having medical insurance is more important than putting a retirement plan in place. But the lack of a retirement plan will be felt much later, when there’s nothing that can be done about it. The key here is balance; ensure that all aspects of your life are covered so that there are no unpleasant financial shocks at any stage.

B Srinivasan, CFF Director, Shree Sidvin Financial Services