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My Self Insured Health Insurance Corpus

 Slightly more than 3 years ago, I did something unconventional – I bought into a very high deductible health insurance plan for our family. The deductible was INR 5 Lacs. Essentially, I was on my own for this much money – EVERY YEAR, in case I or any of my family members needed any hospital care. The upshot for this big risk I took:

-          I paid a very meagre premium for a policy with no sub limits – especially no daily “room rent” limit which renders Sum Insured of normal “ground up” policies mostly useless to the full extent

-          The Sum insured I got was quite high for the premium paid – just under INR INR 5,000/- for a Sum Insured of INR 20 Lacs

Why did I go for such a high deductible health insurance policy and took such a seemingly big risk? Because the numbers I did brought out a very different picture and I made my decision to be self insured for first INR 5 Lacs and then only let insurance take over if need be.

How did the numbers help me take on such risk? First is realizing an insurance contract is a long one. When you get into a health insurance contract, or any other insurance too, you are buying it for your lifetime. Rather than look at just the current year premium, I looked at what will be total premium outgo for my lifetime. I assumed my life expectancy as 85 years. A zero deductible policy I had shortlisted would have cost me nearly INR 60 Lacs for 45 years. On the contrary, the deductible health insurance plan cost for similar period was just INR 5.05 Lacs. And this was without bringing in premium inflation into picture. The gap of INR 55 Lacs made me move towards a combination of high deductible health insurance and a self insured corpus for the deductible part to begin with.    

And then the subjective part - unlike a life insurance contract, the catch in health insurance is - the premiums are not constant. They go up as you age. And once you approach 60 years and beyond, the rate of premium increase will gather pace. Sooner than later, affordability of premium question will come up – and if the finances are tight, one may be forced to let go of the health insurance, at the stage when one needs it most. Not to mention the premiums being paid for long period going waste.      

My high deductible health insurance policy is now running in its fourth year and by god’s grace, we have not needed any hospitalization till now. My conservative calculations show that I have saved close to INR 1.72 Lacs from the premiums to be paid had I taken a normal no deductible health insurance policy. The premium savings essentially now cover nearly 35% of my policy deductible.

Buy hey, we are missing the self insured corpus aka policy deductible allocated when I took the high deductible insurance. My “Self Insured Corpus” spreadsheet shows my “self insured capital” now stands at INR 8.64 Lacs. This includes initial capital of INR 5 Lacs (the policy deductible) plus the annual premium savings, plus the investment returns @ 10% annualized (which is my current overall portfolio ROI) on this capital.

That’s how the numbers helped me in creating my self insured corpus. That said, the biggest upshot of having a self insured corpus – freedom to use the capital accumulated as you please, in case hospitalization is needed without going through the hassles of filling up the forms and tackling the health insurance administrators, more so in a debilitating situation!!! 

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