Health Insurance Vs Health Emergency Fund – Which is better?

Is it wise to buy health insurance or create a health emergency fund, especially with rising premiums and uncertain claim settlements?

The ongoing increase in health insurance premiums, combined with the lack of standardized rules and regulations and the troubling experiences of claim denials, forces individuals to rethink whether it is wiser to buy health insurance or to create their own health emergency fund.

The problem with health insurance premiums largely arises from the lenient regulations set by the Insurance Regulatory and Development Authority (IRDA). The IRDA allows for premium adjustments under specific circumstances, giving health insurance companies significant freedom in this area. Below are the lines from IRDA website.

Health Insurance Regulations, 2016 specified certain principles of pricing of Health Insurance Products offered by Life General and Health Insurers. These principles are placed hereunder (in verbatim).

a. Regulation (10): Principles of Pricing of Health Insurance Products offered by Life, General and Health Insurers:

b. Insurers shall ensure that the premium for a health insurance policy shall be based on,

  i. Age: for individual policies and group policies.

  ii. Other relevant risk factors as applicable

c. For provision of cover under family floater, the impact of the multiple incidence of rates of all family members proposed to be covered shall be considered.

d. The premiums filed shall ordinarily be not changed for a period of three years after a product has been cleared in accordance to the product filing guidelines specified by the Authority. Thereafter the insurer may revise the premium rates depending on the experience subject to (d) (e) and (I) hereunder. However, such revised rates shall not be changed for a further period of at least one year from the date of launching the revision.

The chances of a sudden increase in health insurance costs are greatly amplified by the presence of such widespread and trendy regulations. Hence, assuming your health insurance company will not use such tactics in the future is unknown.

In this context, a common consideration among many individuals is the potential benefit of establishing a personal health emergency fund rather than depending solely on health insurance providers.

Health Insurance Vs Health Emergency Fund – Which is better?

Let us now discuss on both the pros and cons of having health insurance vs. a health Emergency Fund.

Health Emergency Fund

# You have full control over the amount available to you for usage.

# No such headache of waiting for the cashless facility or insurance companies to claim settlement.

# Beforehand you are aware of whether you can afford the hospitalization or not.

# If the premium is too high due to age or certain health-related issues, then it is better to have our own health emergency fund than health insurance.

# If you are unable to get health insurance from any company due to health complications, then you have no option but to create a health emergency fund.

# No more the game of hospitals’ double standard pricing mechanism (pricing differs if the payment is from your own pocket vs the payment is from insurance companies).

# No headache or fear of premium increment (especially during old age).

# Maintaining good health habits can lead to fewer hospitalizations, as you are not relying on this resource for an extended period. However, it is important to remember that our overall well-being is influenced by both a healthy lifestyle and a degree of luck 🙂

Now let us look into some disadvantages of relying on our own health emergency corpus.

# Due to hospitalization if the fund is reduced, then it is your own responsibility to fill it as soon as possible. Because we don’t know when the next health emergency will knock us.

# Due to an increase in health costs, your current health emergency fund may not be sufficient after few years. Hence, even though you have created a decent health emergency fund, it is imperative for you to increase it on a yearly basis.

# If you are unable to increase the corpus, then the risk of hospitalization affordability may arise.

# As you are keeping a health emergency fund in liquid products, the possibility of using it for other unwanted purposes may be high.

Health Insurance

Owning health insurance has its own positives and negatives also.

# Restoration Benefit – Assume that you have exhausted your health insurance coverage due to hospitalization, then due to restoration benefit, the sum insured is restored to the earlier limit (in some cases subject to certain conditions). This brings a lot of relief as you do not need to worry about the coverage restrictions.

# In the case of health insurance, as it is a one-year contract, the sum assured is to normal coverage each year and for that, your cost is just to pay the premium. However, in the case of a health emergency fund, it is your responsibility to restore the shortfall as soon as possible.

# No Claim Bonus – Many health insurance policies offer an additional sum insured as a reward for not filing a claim within a given year. This reward can vary between 5% and 50% annually and may accumulate to between 50% and 100% of the original coverage amount purchased. The accumulated coverage is gradually reduced only when multiple claims are made against the policy.

Regarding the disadvantages of having health insurance are – no control over health insurance premiums, we have to be at the mercy of immediate response and claim settlement from health insurance companies, and fear of rejection even after paying the hefty premium.

Conclusion – Having both personal health insurance and a health emergency fund comes with its own set of benefits and drawbacks. However, I believe that obtaining personal health insurance as soon as possible and maximizing the coverage with the super top-up, while thoroughly understanding the specifics of the policy, is a wise decision. At the same time, I do not recommend relying solely on health insurance. It is a smart strategy to have a strong base plan with super top-up coverage and maintain an independent health emergency fund (mainly because health insurance cover does not mean they will settle the 100% claim).

Refer to our latest health insurance-related articles –

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