I recently met a couple in their early 60s and they did not have any medical insurance. I was a little intrigued because they are they typical – government job, security, etc. worrying types and they had enough money to pay the premia. So why would they not have medical insurance?

The husband asked me ‘how much premium do you pay per year?’ – and I said about Rs. 23k for myself, wife, daughter and my mother. His argument was ‘if you had done an SIP for that amount over the past 12 years you would have ENOUGH corpus to pay for a medical emergency’ so why waste money on a policy. Good question.

When you take an insurance policy, you are transferring the risk from your head to an insurance company for a premium. Large insurance companies use statistical tables to estimate the risk that me (and my family) represent and price it accordingly. On my own paying for all my medical / health hospitalisation expenses I may not be able to even arrive at an amount that I should set aside for such an eventuality. Many businesses to like to keep the risk to themselves – but they may shortchange an employee and not pay for any health related expenses! For an individual what are the risks of risk retention?

1. Ability to estimate risk is NIL. We have no clue from where an emergency can arise. It could be you 88 year old father falling in the kitchen to your 22 year old daughter needing hospitalisation for depression. Stop acting like God. You have no clue what the next moment has in store for you.
2. You may be prepared for a heart attack but not for Cancer: cancer costs can cripple and last over a few years. It might involve a lot of testing over a 5 year period. This might hurt your portfolio far more than a medical premium. Fire accident is something for which we can NEVER be prepared for..you could spend Rs. 20L in a day or two.
3. You cannot change your mind post 60: Post 60 if you decide to buy insurance, it may not be available at all, or may be available for a very small amount, making it useless.
4. You may not be the greatest fund manager: If you are very conservative you might save money in a tax inefficient bank fixed deposit, and if you are aggressive you may be in penny stocks. If it is a bear market, your penny stocks may not even get the pennies that you put into it! So please stop overestimating your fund management skills.
5. It might erode your finances at a rate much faster than what you thought possible.

I am not against risk retention nor against taking medical insurance. I do think the Householder’s policy is a waste of money – at least for me – I will be able to buy a fridge, tv, laptop and mobiles whenever I want. I do not think these things have any resale value at all.

However, I am comfortable with a Rs. 5L medical cover for myself, a Rs. 5L floater for my family, and a Rs. 10L top up medical insurance from the same company.

Not that I cannot afford the medical expenses if i were to have a heart attack, but that my asset allocation and cash flow allows me to have this policy. However, all my life insurance policies have been done away with except for a Rs. 5L cover which gets over only when I am 65 years of age. Hopefully my funeral expenses will be below that !!