Health insurance vs medical corpus: What should senior citizens prioritize?

Mint

3 days ago

Mumbai-based Sarita Aggarwal, 62, has had an ₹8 lakh health insurance policy from a national insurer for nearly two decades. But in recent years, the annual premium has shot up—from ₹25,000 in 2022 to ₹35,000 in 2023, and then ₹52,500 in 2024. She's bracing for yet another hike in 2025.
She has been considering discontinuing the policy and building a medical emergency fund instead. 'Even as I am paying such a huge premium, I had to sue my insurer thrice to get my claim settled. I won twice," she said. 'Damned if you do and damned if you don't,"she says. Yet, she suspects she'll keep renewing it, simply because there seems to be no alternative.
Thane-based Sameer Deshpande, 58, took a different path. After early retirement, he converted his employer-provided insurance into a private plan covering himself, his wife, and son. When the insurer hiked the premium from ₹18,000 to ₹35,000 in just a year—owing to his age slab change—he dropped himself from the policy.
'I was uncomfortable with this hike. I decided to exclude myself from the policy and renewed it only for my wife and son which cost me ₹21,000. I feel it's smarter to pay cash on demand than to shell out ever‑rising premiums for uncertain coverage," said Deshpande.
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Insurance vs investment
Rising premiums are forcing many seniors to reconsider the value of insurance versus building a medical emergency corpus.
"Hospitalisation is an uncertain event - difficult to quantify the medical bill and just how many times one may get hospitalised. Insurance will surely offer better risk protection against medical corpus, but if the premium amount becomes more than 33% of the total coverage, it is wise to look for alternatives," said Kumar.
Vaibhav Aggarwal, CFA, a behavioural finance professor at O.P. Jindal Global University, ran some calculations for a relative who had been hospitalized three times in the past 10 years.
'I assumed eight hospitalisations in the next 10 years, with the super top-up coverage being used a couple of times and only the base policy for the rest. The total internal rate of return for cumulative inflows and outflows came to 18%. This simulation helped me convince her to continue with the policy," said Aggarwal.
There's also a chance you may end up paying more in medical costs if you opt to pay in cash. 'Insurance companies negotiate fixed packages, often reducing treatment costs by around 20%. In contrast, individuals without coverage may face inflated bills or unnecessary procedures, as there is no insurer to audit the charges. You're at the mercy of the hospital," Aggarwal cautioned.
'If you can't afford the insurance," he noted, 'you can never afford the hospitalization."
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How to make insurance affordable
While rising premiums can feel unsustainable, consider the share of premiums in your overall expenses. 'As long as your annual premium is equal to or lower than your two months of expenses, it should be fine. It should not exceed 15-20% of your annual expenses, as data from OECD countries shows," said Kumar.
What should you do if it reaches that level? To maintain decent coverage, you may consider pairing a low-coverage base health plan with a super top-up policy.
A super top-up plan comes with a deductible, which means the policyholder will have to pay the amount up to deductible from her own pockets or from the base policy before the super top-up coverage kicks in.
The deductible makes the premium of super top-up plans much lower than a regular health plan. "Keeping a base plan of ₹5-10 lakh and layering it with a super top-up significantly improves affordability. Having both from the same insurer can simplify claims, but it isn't mandatory," said a spokesperson from Ditto.
If this too is unaffordable, simply maintain a super top-up without a base policy and keep the emergency fund ready to meet expenses equivalent to the deductible threshold. The premium hike in super top-up is relatively slower.
Few people buy a top-up plan which works exactly like the super top-up with a difference that one can only use it for a single claim or hospitalization within the policy period.
Mohan Govindrajan, a 66-year-old living in Chennai paid ₹50,000 to 54,000 annually for himself and her wife separately for their 10-lakh policy. Govindrajan noted that 10 years ago, the premium was significantly lower, around ₹10,000 to 20,000. They also have a top-up plan that covers them with ₹20 lakhs sum insured with a 10 lakh deductible.
'The premium hike in the top-up plan has been much slower than my base policy," he said.
If insurers do not sell you a super top-up due to health or any other reason, there are ways to lower your premium of the existing policy.
"Some insurers offer discounts if you pay premiums upfront for two to five years. This can help save money and protect against future premium hikes," said Ditto.
Dropping non-essential add-ons is another option. "Riders such as critical illness, hospital cash, and OPD cover can push premiums up. If you have sufficient savings to handle smaller expenses, consider removing them and focusing purely on hospitalization cover," Ditto said.
Use wellness programmes efficiently."Insurers such as Aditya Birla, Niva Bupa, and Care offer wellness programmes that reward you for meeting health goals such as discounts or reward points if you stay active or go for regular health checkups. These aren't huge savings, but they can help a little with the overall cost," said Ditto.
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Alternatively, if your children are employed, they should consider adding parents in employer-sponsored group plans as dependents. If you qualify, this can provide decent coverage at a lower cost.
Last but not least, opt for government schemes. If you are over 70, you can enrol in the Ayushman Bharat Pradhan Mantri Jan Arogya Yojana, which will make you eligible for ₹5 lakh insurance cover.
While dropping the insurance policy to invest the premium equivalent in an investment product seems viable, one should look for other alternatives to keep the policy running without burning a hole in the pocket.