A reader says, “I’ve been a reader of freefincal for the last few years, I really like your work. I have a generic question about health insurance for senior citizens, if you could write a post about it, it would be very helpful”.
“My question is as follows – For senior citizens, if the premium is very high(50+k) for less coverage(5L), is it better to have health insurance or invest that money in a conservative equity/debt fund?”
“In my case, my father is 71 and has heart ailments and diabetes. As per our research, good health insurance will cost around 70k per year for 5L of coverage. Also, the premium will increase after 75. So, is it better to invest that money in a conservative equity fund expecting a 10% XIRR return?”
“Or should we go for health insurance? I am aware that investment in an equity mutual fund is a long-term investment (5–10 years). Also, we have a decent amount of savings in case there is a medical emergency.”
Many of us view health insurance premiums as a waste of money. A change in perspective might help.
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First, at age 71, with diabetes and heart ailments, very few insurers would be willing to offer a policy. Even if they did, they would insist on co-pay or a hefty deductible or permanently exclude the pre-existing conditions and charge a much higher premium than what online portals indicate. So there is a good chance that you father maybe deemed uninsuraable, and you may end up getting your wish of investing the premiums!
Assuming someone is willing to offer your father insurance of Rs. 5 lakhs, there are some question to consider. Can you afford to lose, or are you willing to lose Rs. 5 laksh in yearly hospitalisation? This is quite probable for a senior citizen with pre-existing conditions.
So the combined liquid networth of your family should be much more than Rs. 5 lakhs for you to afford the loss. As regards the willingness to lose, you are thinking twice about paying Rs. 70K in premiums, so I assume you don’t wish to lose Rs. 5 lakhs a year (perhaps more).
If you pay the premiums, you are have a reasonable chance of ensuring your networth does not erode after each hospitalization. Therefore it must be viewed as an investment with significant return potentail.
Assuming over the next decade, there were 2-3 hospitalizations; it is hard to beat the benefit of a health insurance by investing the corresponding premiums elsewhere. The networth erosion due to hospital bills can beat any return from the investment. Naturally, there can be a few years of no hospitalizations, but it is better to err on the side of caution than recklessness.
Therefore we recommend buying health insurance for your father. And as regards – “is it better to invest that money in a conservative equity fund expecting a 10% XIRR return?” – generally, we recommend expecting much less from equity! 🙂