Moneywise

Why saving tax should not be a factor while choosing your health insurance policy

Would you buy health insurance because…

  1. you think you genuinely need it? Or
  2. you wish to use it merely for saving tax?

In quite a few cases, it would be option ‘2’.

Tax season is just around the corner and it’s quite possible that most of you are quite busy looking for ways to reduce your tax burden. Under section 80D of the Income Tax Act, buying insurance offers tax deductions of up to Rs 25,000 for you, your spouse and dependent children. Purchasing mediclaim for your parents gets you a tax deduction of up to Rs 30,000. It’s no wonder that health insurance is highly recommended by CAs and financial planners to serve the dual benefit of safeguarding one’s financial health as well as for saving tax.

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Thanks to the mushrooming of a variety of online insurance aggregators, you now have the ability to browse for health insurance plans online and select the most affordable option available.

This is not a recommended way to go about this. Here are a few major reasons why you ought to consider:

1. Pre-existing diseases

This is vital to consider when you’re buying health insurance; especially if it’s for your parents. The lure of saving taxes could make you overlook the fact that your parents might have pre-existing diseases. They themselves might be unaware of the fact that they suffer from a pre-existing illness. This could prove to be a problem when you try to claim expenses incurred, but the insurer, after reviewing all necessary documents, refuses to process the payments as pre-existing illnesses weren’t declared initially. It’s thus extremely important to get a check-up before selecting a health insurance plan even if the company doesn’t require that you do.

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2. Hospital tie-ups

Don’t underestimate the importance of cashless coverage facilities that are available with a network of hospitals tied up with your insurer. During an emergency, it can become difficult to arrange for cash to pay the deposit. This is where health insurance providers that offer cashless options, make for an important consideration.

3. Claim settlement

This is the most important parameter to consider while purchasing health insurance. Consider the health insurance providers who offer a higher claim settlement ratio.

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4. Inflation

It’s tempting to purchase an insurance policy with a low premium if you’re young and the coverage that is offered is enough to sustain hospitalisation expenses. But, inflation cannot be ignored and over 10-15 years, the value of the cover, which looks attractive today, may not cover all that much of your bills later.

5. Sub-Limit – Rent capping

The concept of Sub Limits is one of the most important points in the fine print of any health insurance. It can be placed not only on room rent but also on a doctor’s consultation charges, ambulance charges and other common medical procedures which are specified in the health insurance policy document. So, your overall hospital bill will be determined by the type of room you choose.

To illustrate, you purchase a health insurance policy with a sum assured of Rs.5,00,000that has a room rent cap of Rs. 3000/night. Upon admission, you choose to stay in a private room that costs Rs. 3,800 per night, assuming you’ll only need to pay only the difference in room rent i.e. Rs. 800. That would be incorrect; your entire hospital stay is based on the room you select, from the operation, consultation, ambulance and other fees. This is worked out by the ratio of the actual cost of the room divided by the rent capped sum, which in this case is 3,800/3000 = 1.266.

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All remaining services are reimbursed in the same proportion as the room rented. For example – consultation fees could be Rs. 20,000/1.266 = Rs. 15,798, medical tests Rs. 30,000/1.266 = Rs. 23,697 and so on. In this way, the difference between the actual bill and the actual covered amount grows bigger.

Keeping this simple factor in mind can save you a lot of money. A lot more than just the taxes you pay. The only reasons to buy health insurance should be to receive appropriate coverage and the assurance of helpful service whenever things get difficult; the tax benefit is just a bonus.

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