Is Health Insurance your emergency fund?
03 Jul 2017
Nutan Gupta
New Page 1
The Emergency fund:
In a world full of uncertainties, having an emergency fund is of
paramount importance. An emergency fund is an amount that you keep earmarked for
unexpected contingencies, such as loss of employment, medical and other health concerns,
and other such situations where expenses cannot be met single-handedly by the income. The
emergency fund or the contingency fund is what keeps one floating in situations where one
is left with no income.
An emergency fund isn’t supposed to fund those extravagant
purchases you make; it is supposed to assist you in emergencies, whenever you might need
the cash. It is wise to maintain an amount that covers at least three to six months’
expenses. Another main objective of having an emergency fund is to take care of your
unexpected medical expenses.
Is Health Insurance a part of your emergency fund?
The term "medical emergencies" has a very broad scope – it can mean
something as trivial as a road accident or as serious as lung cancer. These are the things
that no one has control over and can bring a huge financial disaster. Buying a health
insurance with cashless facility will offer protection in such a situation otherwise you
need to keep aside a larger emergency fund so that it can cover the medical exigencies as
well.
Why health insurance?
Statistics show a rise in the number of cancer and blood-related
diseases, which means the total expenditure on health and disease prevention, and cure is
rising too. These rising costs can wreak havoc in someone’s life that doesn’t
have a contingency fund earmarked. In the absence of such a fund, the person might have to
borrow the money from a friend, a bank or perhaps another un-institutional source of
finance at an exorbitant rate of interest. This can be very expensive and otherwise
disastrous to the long term financial goals. The solution to this is a properly planned
emergency fund.
How much health insurance do you need?
The sum assured on your health insurance should be sufficient enough to
cover your health expenses in case of a medical emergency. The amount of sum assured you
require largely depends upon your family size, your current income, the health status,
age, and the health coverages you already have.
If you have your elderly parents that are dependent upon you then, you
may require a larger health cover given the old age of your parents which may require more
medical attention. Similarly, the health cover provided by your employer may not provide
sufficient sum assured to cover your and your family’s medical expenses. Then, in
that case you may need to buy a supplementary plan to have a sufficient coverage.
Also, it is important that the health insurance policy you choose to buy should have a
large network of hospitals so that you can avail cashless facility. Otherwise, you will
have to dig in your savings to pay the medical bills and then submit them with the
insurance company for reimbursements. This defeats the purpose of having a health
insurance as emergency fund if you have to arrange for cash for paying the bills on your
own.
The bottom line
It is important to allocate sections of the emergency fund to different
things because you never know what happens. Going by Murphy’s Law – what can
happen, will happen. It is in one’s best interests that one should save for any and
all possibilities. One might think that one cannot fall sick and lose one’s job at
the same time but it might happen, and the health insurance you have will help you that
day.