5 benefits of Health Insurance

Health Insurance plays a pivotal role in saving and planning for health-related emergencies.  

  

   Here are the five benefits you can avail through health insurance plan.

1. Don't pay for hospitalisation

You can avail cashless health insurance (indemnity based) at networked hospitals of insurancecompanies. It means that you do not have to pay the medical expenses at these hospitals. Theinsurance company will settle it for you on your behalf.

2. Cover for life threatening critical illness

The fixed pre-defined benefit type of medical insurance policies provides a fixed lump sum payment upon diagnosis and confirmation of certain critical illnesses like cancer, stroke, paralysis, kidney failure, etc. Irrespective of the actual amount spent by the insured, he or she receives the lump sum amount which can be used to fund rehabilitation, recuperation, lifestyle adjustment, etc.

3. Get a Convalescence Benefit

Some health insurance plans offer an amount for each day of hospitalisation. Do not worry about keeping records of the actually spent to claim this daily cash. The daily cash amount does not depend upon the amount actually spent.

4. Avail tax benefits and safeguard your finances

A  comprehensive health insurance policy with an adequate sum assured can help you meet unplanned healthcare expenses so that you do not have to dig into your savings or reroute our income. One can also avail pre-defined tax benefits by paying health insurance premiums.

5. Get allied benefits

Healthcare system in India has evolved with preventive health check-ups and improved diagnostics. Certain progressive insurance companies offer benefits that are generally not associated with healthinsurance policies. Some such benefits are: Free health check-ups, Tie-ups with health service providers, Discounts Coupons on healthcare services and Free Consultation with doctors.

**Source: India Infoline

What are liquid funds ?

Instead of parking your cash in a savings bank, why not put it where it fetches higher returns? A liquid fund is such an option. The risk in it is minimal, though not completely absent. Here's how to make the most of a liquid fund.

What is it?
A liquid fund is a debt mutual fund scheme. You use it if you have excess cash and think you might need the cash in a few days or weeks or months. If you wish to invest a large sum in an equity fund, but want to stagger the investments over a period, put your money in a liquid fund and enrol for a systematic transfer plan (STP) whereby you invest a fixed sum from your liquid fund to an equity fund each month.

Returns and Risks
Your liquid fund, like every other mutual fund scheme, invests in securities that have a market price. When market price of these securities moves up or down, so does your mutual fund's net asset value (NAV). But a liquid fund's NAV doesn't move up or down as much as other funds.

Here's why. As per rules laid down by the capital market regulator, Securities and Exchange Board of India (Sebi), if a security matures in under 60 days, it need not be marked to market. Just the interest component needs to be added. In simple words, whatever interest your debt fund earns through the tenure of a security, it will divide the total interest component equally for the number of days it holds the security. The security's price remains steady. Hence, your liquid fund's NAV movement is linear; think of it as a steady line going up.

Does this mean your liquid funds are risk-free? No. Your liquid fund can invest in scrips that mature up to 91 days. Therefore, if it invests in scrips that mature between 60 and 91 days, it needs to mark-to-market the same, depending on its credit rating. To keep things simple, if such an underlying company defaults on its interest and/or principal repayment, the scrip's credit rating drops and so does its market price. If your liquid fund has invested in such a security, its NAV falls too. Recently, the net asset values of four of Taurus Asset Management Co. Ltd's debt schemes (one of which was a liquid fund) went down sharply because one of the companies in which all these schemes had invested in, defaulted on repayment. Typically, most debt funds invest in scrips that mature around 15 to 20 days to curtail their risk.

You can reasonably expect your liquid funds to return around 6-7% returns in a year.

Source : Value Research 

A small SIP may be insufficient to meet your goals

If you had started a monthly SIP of Rs 10,000 in a middling equity fund 15 years ago, you would now have Rs 57 lakh in that investment. While this may seem like a miracle for those who are used to bank fixed deposits and Public Provident Fund (PPF) returns, by the standards of long-term investments in equity funds, this is nothing remarkable. In fact, a top fund would have yielded Rs 65-70 lakh. But let us just focus on a thoroughly average one for the moment, because I want to make a different point in this column. 

Nowadays, a lot of investors have long-running SIPs. Although 15 -year uninterrupted SIPs are still not common, they definitely will be in a few years, because the SIP culture really started taking hold only about seven or eight years ago. While the net result of the SIP phenomena is great, one can't help but notice that far too many investors are taking SIPs in what I would call ?homeopathic doses'. 

I met someone just last week who has a five-figure monthly income, but has an SIP of Rs 3,000 a month in an equity fund. This is a prime example of what many investors are doing. They are faithfully investing though SIPs for long periods, but with investment levels that will not have a material impact on their financial well-being. Investing 3% of your income in an equity-backed asset class means that it's going to serve as little more than entertainment. 

In comparison to what you invest, you might eventually be very impressed by the returns generated, but it will not make a difference to your life. A few days ago, a couple who are former neighbours came to me to discuss their investments. They have put a reasonable sum of money into their savings over the years, but almost all of it in bank fixed deposits. On my advice, they started an SIP in a good balanced fund some fifteen years ago, investing around Rs 2,500. They increased this sum marginally a couple of times. However, now, when they need to gather up their investments and plan their post-retirement life, that balanced fund investment is worth about Rs 12 lakh. They are quite amazed that a negligible monthly sum has resulted in an accumulation of that much money. However, if we consider the bigger picture, which is their financial situation over decades of retirement, Rs 12 lakh is inconsequential. The rate of return is great but the actual sum is too little for it to turn into a comfortable amount. 

An equally unproductive situation is that of a saver who started off with a substantial sum but never increased the monthly investment. Consider a person who started an SIP of Rs 10,000 a month in 2004, and is still at the same amount. In 2004, this was 20% of his income, now it's about 7%. Look at the first example. Over 15 years, Rs 10,000 a month became Rs 57 lakh. However, a small increase of just 5% a year in this amount would have resulted in a final figure of Rs 71 lakh. For most savers, their income would increase in tandem, ensuring that they hardly feel the increase in the SIP amount. And yet, this would have a big pay-off at the end, when you redeem the investment. 

So, the idea I'm trying to get across is fairly self-evident. For an investment to meet your financial goals, a high rate of return alone is not enough. It must have a chance to reach the actual amount that will help you move towards that goal. As savers shift from India's endemic fixed-income mentality to equity backed investments, it is natural to want to try things out at a low intensity, to just dip your toes into the water, so to speak. However, there's no point to just keep your toes dipped for a decade or so. If you like the water, jump in after a year or two. 

The author is CEO, Value Research. 

Source: Economic Times Wealth