Yes. That is true. I don’t have any kind of insurance for my family, that includes my parents. That is a huge risk that no one in the right mind should take. I would never suggest anyone do it. I would not do it either if this panned out a little differently. Let me explain.
Well, before I explain my situation, I want to inform you that I have written a couple of articles on insurance in the past. If you have missed them, do check out my posts on health insurance and life insurance. The short of it is that you will need a lot of life insurance in the early part of your career and you can taper it down to zero once you are financially independent. While health insurance needs to go in the opposite direction. Initially you can have a moderate plan and then increase it as you grow older. That is because expenses will be higher not just due to inflation but also because you tends to have more complications as you grow older.
My insurance lapsed
Since I am retired, I don’t need the life insurance any more. When I quit my job, the life insurance provided by my company lapsed. At the same time, my health insurance also provided by my company lapsed. It was a family floater plan for four adults and one child. I could have transferred the health insurance to my name and continued paying the premiums, but I let it lapse anyway.
What actually happened was that I was supposed to transfer the health insurance to my name 45 days before my last working day. That was the rule in my company. Not sure if it universally true. However I did not know about it until very late. I knew I could transfer it to my name by did not know about the 45 day deadline. When I called up the insurance they said it was not possible. I did not want to change my last working day and hence let it expire.
If I was desperate, I would have changed the last working day and figured out how to transfer the health insurance. But I had a plan. You see, I have this extra corpus which I did not count as part of my retirement plan. That corpus is my employee stock options. That corpus is supposed to be my go to bucket for all kinds of unaccounted expenses. It could be medical emergencies, international travel, higher education for child, kid’s marriage, inheritance to my daughter etc. Except for the international vacation, I don’t have plans for any of the other things that I mentioned. But in a pinch that is where I will dip into.
Is health insurance beneficial?
I am not really sure about this part and please don’t take advice from me. Here I am risking quite a bit and no one in the right mind should do it. I feel that the regular health cover is probably something I can build up especially if it is a one time expense. For example, a Rs. 10 lakh health insurance plan may cost me Rs. 70K per year if I purchase one now. I would rather have a stash of Rs. 10 lakhs saved in a short term mutual fund and let it grow. But that logic falls apart if the expense is going to be a recurring one, for example dialysis which might cost Rs. 1 lakh per year every year.
Another reason I feel it is better to keep a stash myself is because critical cover is paid only once and that is where the biggest form of expenses fall under. Beyond this, medical expenses increase quite a bit year over year (inflation). Yet we will be stuck with a small cover. Take the case where you took a Rs. 5 lakh cover when you are 25. When you are 45, the insurance will still cover you for Rs. 5 lakhs. Some medical expense that cost Rs. 1 lakh today might become Rs. 6.72 lakhs in 20 years (assuming 10% health inflation). Then you will find the insurance inadequate.
In that case you can either top-up every few years and pay higher and higher premiums as you age, or take a very big insurance to start with and pay high premiums early on.
You might know Mr. Money Mustache also complains of rising health insurance cost in the US. Also that he went without health insurance for two years and what he is doing now. Anyway, my philosophy is similar to his. Take care of health — exercise and eat healthy and have no insurance. But of course, in spite of being an absolute health freak, one can be struck with bad luck and fall prey to cancer or heart problems or other diseases. In that case, it means the time for the person (could be you, spouse, parents or children) has come to leave the world. Make peace with it…