The impact of increased Section 80D limits on your health insurance

 

A month back I had written on the impact of budget on your personal finances, I had followed it up with an article on Sukanya Samruddhi Account, let's now see what increase in 80D limits can mean for your health insurance.

30-percent-offWhat is section 80 D?

Under Section 80D the premium paid towards health insurance policy for self, spouse, children & parents are allowed as a deduction. Cost of preventive checkup for self and family as defined above,up to a limit of 5000 subject to overall limit of 25000 is also allowed as a deduction under this section. With effect from this year the limit has been raised to 25000 there is a further increase of 5000 for senior citizens

 

Are you asking us to buy an insurance just to save tax?

No! of course not! We strongly believe that your financial decisions need to be totally based on needs and goals, only after you have ascertained the need for a product or an investment should you look for tax optimization. Well, having said that all of us are aware of the ever increasing cost of health care. Just last week my daughter had a minor fall in her school needing a small procedure at the hospital which lasted all of 15 minutes. The bill for the same was a whopping 26,000! I am sharing this incident just to bring home the steep increase cost of good health care.

This being a reality, having adequate health insurance for your family is absolutely imperative.

Yes, but all this was always the case! What has the budget got to do with it?

What the budget has done can be compared to a discount sale on your favorite garment brand. Come sale season many of the well-known brand shops are swarmed with people trying to take full advantage of the offer. Why then should you not treat this opportunity differently? Isn’t it a discount offered in disguise? Assume you don’t have health insurance even though you recognize the need for it and you pay tax at the highest bracket. If you do buy the insurance and claim deduction under section 80 D your premium would be deducted from your taxable amount subject to maximum limits discussed above. You therefore have a choice of looking at it as discount at your tax rate on your health insurance premium.

Fine, we get it but what about the insurance we already have?

If you already have a health insurance, great! What you need to evaluate is if the sum insured is adequate. Having a very low sum insured defeats the very purpose of insurance. Ball park if you have a floater than a minimum of 10 lakh cover would be required. For an individual the minimum would be 5 lakhs. If you find that your current insurance is small. You have the option of going in for a top up or add on cover.

These covers come with a deductible and cost very little. A deductible means that the insurance covers any amount incurred above the deductible limit. For example if you have a deductible of 2 lakhs, for every hospitalization the first 2 lakhs will have to be borne by you and any amount incurred over and above 2 lakhs will be reimbursed by the insurance company. You can opt for a deductible equal to your current insurance & use the top up to increase your cover.

My company covers me, why would I duplicate insurance?

Many companies offer health insurance as part of package and opting for it is normally a good deal. This is because a lot of conditions are waived off for group insurance which is not true for individual insurance. Pre-existing diseases for example will not be covered under your individual policy but will be taken care of in most cases in a group policy

. Despite the apparent advantages being dependent solely on company provided cover can be a little dicey cause you may fall sick or worse have an accident when you are in between jobs. The bigger risk however is the fact that when you retire and desperately need insurance you may be diagnosed with lifestyle diseases like diabetes or hyper tension and may be uninsurable. A top up insurance would come in handy in your case, because you would be limiting your losses to the deductible amount even at a later stage. And the premium for a top up insurance would cost you as much as a meal in a fancy restaurant.

Another problem which I encountered in my own case was, while we were covered for medical expenses by my husband’s company to the extent of 80% of the bills the company had not insured with anybody. This essentially means that when the reimbursements were made they became taxable. So if I incur an expense of 1 lakh the company would reimburse 80% or eighty thousand and we would end up paying tax of twenty four thousand. Which means my reimbursement post tax would be fifty six thousand. If I were to have a personal medical insurance (which I do) I would have been reimbursed the entire sum spent and no tax is applicable on the same.

Given below is the premiums applicable for top up insurance from Apollo Munich (company chosen randomly), this is to give you an idea of how cheap these insurances really are.

apollo

For a 40 year old in the highest tax bracket the family can be covered from 3lakhs to 13 lakhs at Rs.9,112+ service tax. If you factor in the tax deduction under 80D you could consider the cost of insurance at 70% of the premium which is Rs.6378+ Rs.898 service tax. Should you decide not to go ahead you would end up paying 3000 tax anyway.

You also need to keep in mind that while your parents may not be dependent on you financially, you would chip in, in case of a medical emergency. The premium as you get older is pretty steep. Instead of forgoing the option of insuring them you could consider the top up option and limit your losses. Again insurance paid by you towards parents’ health insurance is available as deduction under 80D. If your parents are senior citizen you would get a maximum deduction of 30000 over and above the limit of 25000 available for self, spouse and children.

Go ahead evaluate your health insurance and buy your peace of mind. May the beginning of the financial year bring you peace happiness and health. Do leave your queries and experiences as comments.