One of the biggest contingency expenses that you can probably face in your lifetime is medical expenses especially in the face of unexpected illnesses or events. While we cannot predict such contingencies nor be mentally prepared for them, but we can definitely plan for them financially. Medical and health insurance has typically been the most preferred way for this.
But is that enough? Medical insurance often has several clauses that limit the claim settlement amount resulting in a higher liability for you. Furthermore, as your age increases, the premium for medical insurance cover increases considerably making it extremely expensive for you to afford especially if you are in your retirement years. Another critical healthcare area that is not taken care of by an insurer in India is long term care insurance. With increasing life expectancy and increasing lifestyle related illnesses long term care when faced with a dilapidating illness can be an extremely costly affair.
So, what else can you do to supplement the cover provided by insurance so as to cover rising medical and old age healthcare costs?
Your investment should be capable of beating inflation
Inflation is omnipresent – effecting practically all components of expenditure. Historically, inflation tends to hit medical expenses at a considerably higher rate. The retail healthcare inflation for FY 2018-19 stood at 7.14% which was more than double that of the overall retail inflation that stood at 3.4% for the same period1. This makes it imperative that your investment returns have the potential to beat this rate of inflation. Mutual fund investing can be your bet for this.
Let’s take a look at the factors you should keep in mind while investing in mutual funds for covering your medical needs:
Allocate a separate corpus or investment towards medical and healthcare
- Like any other goal, consider accumulating funds for medical expenses as a separate goal
- You can start a different SIP for this or put away a lumpsum in a long-term investment avenue.
- Earmarking funds in a specific long-term fund is important to maintain financial discipline towards this goal
Choice of the fund
- The nature of fund you could opt for should be guided by the investing time frame that you have.
- If you are starting a healthcare fund relatively earlier in your life in your 30s or 40s, then you should look for opportunities with growth potential and can invest in equity-based funds over a long term.
- On the other hand, if you are starting a fund in your 50s or 60s as you approach retirement, then you may want to opt for relatively safer debt based or conservative hybrid funds that may have the potential to earn reasonable returns over a shorter term.
Switch over off fund
- Bifurcate your healthcare funding into two separate phases - 1. Wealth creation phase and 2. Returns pay-out phase
- In the first phase, generally pre-retirement, focus on accumulating funds by investing in funds that have the potential to give you growth. Choosing the right fund based on when you start this investing journey
- In the second phase, you could switch over your investment from growth-based funds to debt-based funds that may have the potential to give you reasonable returns in your post-retirement phase when your medical expenses are likely to increase
Remember to choose an open-ended fund for your healthcare needs. While we all would like to believe that illnesses can be kept at bay till our old age, but the fact is that medical issues can arise at any point without notice. So, choosing an open-ended fund is important that can allow you to withdraw funds at any time (subject to applicable exit load, if any) in an emergency as well.
Do not wait for old age to strike, be pro-active and start planning for any medical eventuality that you may face. Supplement your medical insurance cover with prudent mutual fund investing.
1. Official CPI data
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.