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Health Insurance is Better than a Medical Loan: Here’s Why

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Published on October 29, 2021. EST READ TIME: 3 minutes

Let’s start with an example inspired by many real-life scenarios.Say, Raghu has health insurance and Rajan doesn’t. Rajan believes that he is healthy and not likely to get diagnosed with any serial ailment, and even if he does, he will take a medical loan. Also, he thinks he can save a lot by not paying the annual premium for medical insurance plans. Raghu believes he is healthy too, but he wants to be cautious and prepare for any medical emergencies. So, if you are someone who is confused about whether to side with Raghu or Raghu, let us help you understand the difference between health insurance and medical loan and why the former is a better option.

Difference between health insurance and medical loan

Loans are certainly helpful during difficult times, but wouldn’t you want to avoid them? After all, no one wants an unnecessary debt burden. Instead, when it comes to medical expenses, you can cover yourself financially by buying health insurance. A health plan is something you buy from an insurance company. You pick the coverage and pay the premium for it. During medical emergencies, the insurer pays for the treatment according to the terms and conditions mentioned in the policy.

Now suppose, you don’t have medical insurance, and you get hospitalized.Then you will either use your savings or borrow money from relatives, friends, or the bank, right? This is a medical loan. In both cases, you can get the best quality treatment, but in the latter case, you will be paying all the bills. If the treatment is long, you will need more money from acquaintances, which may cause a strain in the relationship. If you take it from a bank, the interest amount will add to your burden.

While you pay health insurance premium in advance, whether you raise a claim or not, a medical loan is something you take when you need it. But there can be a significant difference between the amount you pay in premium and the amount you borrow. Medical loans can take time to process, and if you need to go in for an urgent surgery, this delay can cost you heavily.

Here’s an example: Let’s say, both Raghu and Rajan become sick with a serious ailment after five years. And the cost of treatment is Rs 5 lakhs. Raghu’s insurer pays the amount as he has a policy for which he pays Rs 20,000-30,000 annually. Rajan uses up all his savings and takes a medical loan of Rs 2 lakhs from the bank. So, the Math is simple, while Raghu pays just above a lakh for the whole treatment, Rajan not only pays Rs 2 lakhs, but will also be paying the interest on the loan amount.

Why is Health Insurance Better than a Medical Loan?

Here are the key reasons:

• Immediate medical facilities:

A medical insurance plan gives you access to medical facilities instantly. There is little paperwork or payment involved to get the treatment started. No time gets wasted in arranging for money.

• Cashless treatment:

Your insurer will have a network of hospitals where you won’t need to pay anything upfront. You just need to provide your policy details and the treatment will start. So, even if you have little cash, it shouldn’t be a problem.

• Network hospitals:

The benefit of having an insurer with a big network of hospitals is that you can find quality healthcare in your vicinity and get medical help without wasting time.

• Unaffected credit scores:

Since you won’t be repaying any amount to the bank, there is no risk of delaying the payment and negatively affecting your credit score. Otherwise, it can impact your other loan applications for a car or home that you were planning to buy.

• Affordable:

As illustrated in the example above, health plans are way cheaper than medical loans, especially if the treatment goes on for a few days.

• Extra benefits:

Not just hospitalisation expenses, your insurance will pay for your medical expenses before and after hospitalisation too. The other benefits include free health check-ups, availability of top-up plans, daily hospital cash allowance, and coverage for alternate therapies among many others.

• Save tax:

Paying premiums towards medical insurance will help you get a tax rebate under Section 80D of the Income Tax Act. If you are not 60 years or above, you can avail a maximum deduction of Rs 25,000, while for senior citizens, the upper limit is Rs 50,000.

Conclusion

By now, it must be clear to you that a medical loan can’t replace a medical insurance plan. During annual financial planning, set aside an amount for the health insurance of all family members. It doesn’t cost much but can save the day when you need quality healthcare.

Disclaimer: The above information is for illustrative purpose only. For more details, please refer to policy wordings and prospectus before concluding the sales.

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