How to create your ‘health fund’

5 MinsOct 21, 2020

A health emergency, more often than not, occurs unannounced. One way to be prepared is to take care of your diet, exercise regularly and consult a doctor when you are feeling unwell. While this will take care of the physical discomfort, what about the financial stress of dealing with the cost of treatment and medicines?

health fund

Although medical science has advanced, quality hospitals and specialist doctors do come at a high cost. It may burn a hole in your pocket and harm your finances. Thus, to reduce this financial stress and for your overall wellbeing, it makes sense to have an optimal health insurance cover. In addition, it is advisable to build a corpus, a ‘health fund’, to deal with any expenses that may be beyond your insurance policy coverage and can be used in an emergency. Let us see how to go about it.

Health insurance is essential

By holding an optimal health insurance cover, you may not need to dip into the saving and investments you have set aside for other financial goals. It is the easiest way to ensure a safeguard for yourself and your loved ones in case of unexpected medical emergencies and should not be overlooked. Make it part of your financial planning.

The premium paid for a health insurance policy makes you eligible for a deduction up to Rs 25,000 in case of non-senior citizen and up to Rs 50,000 in case of senior citizens as per Section 80D of the Income Tax Act, 1961. 

Also, review your health insurance coverage every year so that it keeps up with medical inflation. Axis Bank has tied up with leading health insurers offering a range of health insurance plans. 

[Also Read: How to select a health insurance plan]

A bit of additional money always helps

A ‘Health Fund’ is nothing but the money apportioned out of your monthly Net Take Home pay to meet medical emergencies if faced with an unfortunate situation where the medical expenses were to soar beyond your health insurance coverage. 

Particularly, if you have senior citizens in your family and you are shouldering responsibilities towards their medical expenses, holding an adequate Health Fund is a must! 

It is advisable to have a ‘Health Fund’, which is 50% over and above your existing health insurance coverage. So, if your health insurance coverage is Rs 10 lakh, holding an additional Rs 5 lakh as Health Fund may be prudent. If you or your family members have a medical history, you may add 5%-10% extra.

Keep in mind, this fund is only for your medical emergencies. For other kinds of emergencies, you will need to set additional funds. Use the Axis Bank Emergency Fund Calculator to find out exactly how much you may need.

It is possible to build a Health Fund gradually over the months; all it needs is some financial discipline on your part.

Where to park money for your Health Fund? 

Since a Health Fund is essentially an Emergency Fund, the money should be deployed in avenues that provide stable returns and are easily accessible, i.e. liquid. So, here are a few options:

Savings Bank Account – Parking money in a separate savings bank account (one which is not used for your regular expenses) will earn 3.0%-4.0% p.a. interest on daily balances (quarterly), as opposed to it lying idle and perhaps unsafe at home.

Term deposits – You can clock a slightly higher return by investing in term deposits. To apportion money for your Health Fund, you may take the recurring deposit route that facilitates you to invest every month steadily, regularly and systematically. Axis Bank’s RD calculator will help you ascertain the quantum of interest you can earn over the tenure of the RD and the maturity proceeds. And if an emergency arises during the term of the deposit, you can avail a loan against the term deposit rather than prematurely withdrawing it.

Debt Mutual Funds –You may consider debt funds such as an Overnight Fund, Money Market Fund, Liquid Fund, Ultra-Short Duration Fund, and/or a Low Duration Fund to park a portion for your Health Fund. These funds are suitable for investments ranging from as low as one-day to one year. They offer relatively more stable returns than equity mutual funds and hence, can be utilised to save for funds you may need for an emergency.

Keep in mind that returns in mutual funds are market-linked and may be subject to interest rate risk, credit risk, liquidity risk, etc.

Medical emergency does not always come with forewarning. So, buy optimal health insurance cover and start building a ‘Health Fund’ right away.

Disclaimer: This article has been authored by PersonalFN, a Mumbai based Financial Planning and Mutual Fund research firm. Axis Bank doesn't influence any views of the author in any way. Axis Bank & PersonalFN shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.