Medical insurance: Here’s why you need to give it a serious thought

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It is time for you to put in that last-minute effort to save taxes for FY 2020-21 so that you can claim the deduction while filing the return. Our experts analysed lakhs of ITRs and found that many have not been able to take full benefit of the tax-saving options available. These tax-saving measures are necessary for your family’s health, wealth and wellness.

One of these measures is medical insurance, which not only protects your finances from unexpected expenses but also brings down your tax liability.

Is Rs 50,000 more than Rs 50 lakh?

It might sound ridiculous, but this is what a lot of taxpayers say. When it comes to buying health insurance for their family, a very common excuse is that I don’t have enough money to spare right now. People who say this need to analyse their words more closely. If they can’t afford to pay a premium of Rs 50,000, how will they ever pay the bill of Rs 10-20 lakh if a family member falls seriously ill and needs hospitalisation. Medical costs have shot up in recent years. Some ailments can even leave a family with a bill of Rs 50 lakh.

But there is good news on the tax front. The premiums paid for medical insurance of self, family, and parents are eligible for tax deduction of up to Rs 55,000 in a year. If you buy a cover for yourself, your spouse, and your children, you can claim a deduction of up to Rs 25,000 (Rs 30,000 in the case of senior citizens). Another Rs 25,000 (Rs 30,000 for senior citizens) can be claimed as a deduction if you are buying health cover for your parents.

Keep in mind that not buying health insurance can severely impinge the health, wealth and happiness of your family. Not having health insurance can sometimes mean a matter of life and death, especially in emergencies when every second of delay pushes the patient closer to danger. Imagine a situation where a person requires urgent specialist care but does not have health insurance. His family will spend precious time trying to raise funds for paying the admission costs and other charges.

You haven’t bought medical insurance Your ITR suggests that you have not taken health insurance for your family nor got any preventive health check-ups done in the previous financial year. It is recommended that you do so this year to protect your finances from unexpected medical expenses and to ensure that your loved ones have access to the best medical care available.

2 out of 3 taxpayers make the same mistake If it is any consolation, you are not the only one making this mistake. Taxpayer data shows that two out of three taxpayers ignore buying medical insurance. These statistics are staggering. Approximately 67% of taxpayers are ready to pay medical bills that can be as high as Rs 50 lakh but not ready to shell out Rs50,000 as premium for the cover. In fact, if you factor in the tax benefit, the effective cost of insurance in the highest income tax bracket will come to only Rs 35,000.

Some misconceptions about health insurance

Tax authorities may not allow the deduction: This is not true. The tax deduction for medical insurance and preventive health check-up is perfectly legal. In fact, the government has increased the limits in recent years to encourage taxpayers to take bigger insurance covers for themselves and their families.

Family won’t need medical care: Do a reality check to be sure. Just because you or any family member has not been hospitalised doesn’t mean you will not meet a medical emergency in the future. One should have medical insurance before he actually needs it.

Not everyone needs medical insurance: A fallacy again. Considering our lifestyle and high medical cost every one needs medical insurance. In fact, Prime Minister Narendra Modi has recently launched an ambitious health plan for poor citizens. As a tax expert, we strongly recommend that you buy this cover and claim tax deduction.

I have group cover from the employer: A group medical policy may not be enough. Such policies are for basic needs in the majority of cases whereas a huge bill can erode your savings. Take your company policy to any hospital where you want to get treated and check whether it will cover the entire bill for major ailments (cancer, heart attack, neurosurgery). In most cases, the sub-limits and co-pay clauses will leave you with a fat bill.

Medical insurance won’t give me any returns: It is incorrect to expect returns from a health insurance policy. The objective is to protect your finances against unexpected medical expenses. In case your family is blessed with good health for the entire year, the benefit of a no-claim bonus will add to your policy and give you bigger coverage.

(The writer is co-founder and CEO, TaxSpanner.com. Views expressed are personal)