Healthcare costs are likely to constitute an important part of an individual’s living expenses in the future, even during his or her working years. This is because of two factors.

One, health-related issues that affected middle-aged executives and retirees a decade ago, are now not so uncommon among young professionals.

And two, healthcare inflation is high and unlikely to decline, even if general price levels come down. You could incur large healthcare costs if you or your family member suffers from a medical condition. In this article, we discuss how you can meet your healthcare costs, without impacting your life goals.

Three-tier protection Meet your healthcare costs through a three-tier structure. The first tier is an emergency fund that you should create before you set aside money to meet any other goal.

This fund should be equally divided between fixed deposits and savings account; fixed deposits fetch higher interest rate while savings account provides you immediate liquidity. You can also use the sweep account facility that most banks offer.

The emergency fund should be three-six times your monthly expenses. Remember that you should refill the account within a year after using the money.

The second tier is your medical insurance. This should be a base plan and a super top-up plan. The base plan should be an individual policy on each family member. Suppose you have a base plan for ₹3 lakh. Your super top-up plan can be for ₹5 lakh with ₹3 lakh deductible. So, if you incur ₹4.5 lakh as medical expenses in a year, the base plan will cover ₹3 lakh and the super top-up plan the balance

You should have a medical insurance policy even if your employer offers you medical protection. What if you change your job and the new employer does not offer medical benefit? The third tier is your investment account created specifically to meet medical costs. Until recently, this was a requirement primarily for retirees.

The reason? Individuals typically needed major surgeries in their 70s. But such medical complications are becoming more frequent among young professionals today. You may not suffer from such ailments now but it is better to have an investment account to meet contingencies.

Note that this account is only to fund major surgery-related costs that your medical insurance may not cover.

Keep it in equities This investment account is quite unlike any other investment account you may have.

Your child’s education account will be liquidated just when the child enters college. So, you know today the time horizon of your education investment account. But that is not the case with your medical investment account!

Further, if this account is unutilised during your working years, you should carry it forward to meet medical expenses during your retired years.

It is due to uncertain time horizon and the need to earn higher returns to keep pace with healthcare inflation that the account should be primarily invested in equity — index funds or active funds.

With increasing health-related issues among young professionals, the cost of not having a medical investment account can be high; you may have to abandon other life goals and transfer moneys from those investment accounts to meet health-care expenses. Also consider increasing your medical insurance cover as you and your spouse age.

The writer is the founder of Navera Consulting. Feedback may be sent to portfolioideas@thehindu.co.in

Related Topics
comment COMMENT NOW