Health insurance isn’t enough in retirement: Why you need a medical contingency fund
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Why health insurance alone may not be enough
The PFRDA has launched a pilot called the NPS Swasthya Pension Scheme, a contributory health-linked product similar to the US Health Savings Account (HSA).
The idea is simple: build a medical corpus that you can use during emergencies. But beyond policy experiments, creating a personal medical contingency fund makes practical financial sense.
The idea is simple: build a medical corpus that you can use during emergencies. But beyond policy experiments, creating a personal medical contingency fund makes practical financial sense.
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What is a medical contingency fund?
A medical contingency fund is an additional financial buffer, separate from your regular emergency fund. It works as a second layer of protection when health insurance falls short or does not apply. You can build this fund gradually through disciplined investments, including mutual funds.
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How much should you invest?
Even modest monthly investments can grow meaningfully.
At 8% annual return:
Rs 5,000/month - Rs 9.2 lakh in 10 years
Rs 10,000/month - Rs 18.4 lakh in 10 years
At 10% annual return:
Rs 5,000/month - Rs 10.3 lakh in 10 years
Rs 10,000/month - Rs 20.7 lakh in 10 years
Note: These figures are illustrative. Starting early improves compounding benefits
At 8% annual return:
Rs 5,000/month - Rs 9.2 lakh in 10 years
Rs 10,000/month - Rs 18.4 lakh in 10 years
At 10% annual return:
Rs 5,000/month - Rs 10.3 lakh in 10 years
Rs 10,000/month - Rs 20.7 lakh in 10 years
Note: These figures are illustrative. Starting early improves compounding benefits
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Where health insurance falls short
This fund becomes useful:
* For high-cost or uninsured treatments, including OPD expenses
* When hospital bills exceed insurance coverage
* If cashless claims are delayed
* To pay higher premiums in old age
* When policies have co-payment clauses or exclusions
* For high-cost or uninsured treatments, including OPD expenses
* When hospital bills exceed insurance coverage
* If cashless claims are delayed
* To pay higher premiums in old age
* When policies have co-payment clauses or exclusions
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How much medical buffer should you build?
For a couple aged over 50, a minimum health cover of Rs 20–25 lakh is advisable. The contingency fund should ideally be at least 50% of the insurance cover. That means building an additional buffer of Rs 10–12.5 lakh gradually over time.