The titular line – Why our net worth is the best insurance there is – hit me as I made notes for the health insurance episodes of the Let’s Get Rich with Pattu podcast. Yes, we all know the basics – get adequate life insurance, health insurance, and emergency insurance (fund) before you start investing.
Indeed that is the right and proper thing to do. But are you sure they would come to your family’s aid at the time of need? The emergency fund, if liquid enough and robust enough, indeed would, to the extent possible, and it is something that you have complete control over.
Life insurance is the lesser of the evils (between life and health). There is certainly no guarantee that it would be paid out, but if we have been honest in our application and if enough time has elapsed since policy inception, there is a good chance it would be paid out.
You can use our calculators at the SEBI investor site to compute the life insurance required. Also see: SEBI adds nine freefincal calculators to its investor education website.
However, the catch is inflation would significantly devalue the purchasing power of the corpus. So unless we start investing aggressively and make up for this devaluation with our net worth and some, our family could be in trouble.
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Health insurance is significantly more tricky. Over a lifetime, our family could claim 5-10 times for hospitalizations. Not all of them would be cashless, meaning we have to pay and then get it reimburse.
Our poor emergency funds cannot handle serious hospitalizations. So again, it should (ideally) be our net worth to the rescue. Even for cashless hospitalizations, 10-25% can be non-medical expenses that we must pay. Those with a super top cover for one crore must be ready to pay and reimburse even if the policy is from the same insurer as their base cover. Again net worth to the rescue.
Then there is the dark side of health insurance to deal with. Hikes in premiums, changes in policy terms, insurers not processing claims etc. Again, net worth to the rescue.
I understand reading this must be depressing for young earners, but buying health insurance is necessary as a single hospitalization can significantly deplete your net worth and plunge you into debt. So until that net worth is truly significant, that pesky health insurance can’t be avoided.
That said, your true saviour is your own liquid net worth. So get to work on it and invest systematically and aggressively.