Medical Loan Vs Medical Insurance: Secrets you must know
- 20 April 2020 | 1562 Views | By Abhinav Mishra
Medical expenses are burgeoning day-by-day and funding medical emergencies calls for good financial planning. The most popular products to mitigate medical risks and guard oneself and one’s family from medical contingencies are Health Insurance and Medical Loans. Each of these options has its pros and cons making them suitable/unsuitable based on different scenarios. In this article we try to compare the two products to help you find the best option for your needs.
What is the basic difference between Medical Loan and Health Insurance?
As the name suggests, Health Insurance is a tool that covers the ‘risk’ of a person incurring medical expenses. One may or may not encounter a medical emergency while they are paying for the policy cover. By availing this option you create a safety net for your family.
While a medical loan, on the other hand, can be perceived as special personal loan which is in the event of a medical emergency. In this case, the lender directly pays the loan amount to hospital rather than the borrower. There is also a segment of personal loans for medical emergency in which the loan amount is paid to the borrower rather than the healthcare provider. A medical loan, thus, offers quick access to funds in times of need.
How do these two options work?
Health insurance is prevalent for some time now. Depending on the size of policy coverage and various terms/conditions mentioned in the policy, this option may cover your entire or partial medical expenses. To purchase a health insurance policy, one must fill out a form initially and thereafter pay annual premiums to the insurer. Insured’s age and medical history play a key role in determining the annual premium amount. Insurance companies also offer a post-purchase lookout period (usually 15 days) for you to carefully access the terms and conditions of the policy and withdraw (without any penalty) from the same.
Typically, people with a history of medical diseases tend to pay higher premiums due to a higher possibility of claims. In some cases, insures may even deny a health insurance cover if an individual has a history of major medical ailments. Ironically, health insurance is easier to get and cheaper for comparatively healthy individuals.
How does a Medical Loan Work?
In cases of extensive medical treatment and long hospitalization, the health insurance policy may not sufficiently cover all the medical expenses. In such cases, cash reserves and/or medical loans come to the rescue. A medical loan, unlike Insurance policies, does not impose conditions on the usage of funds and types of services covered. The funds may be used for critical illnesses, aesthetics, surgeries, Ayurveda and other treatments. Medical loans, being a comparatively new product in India, are offered at competitive interest rates by different lenders.
How Can You Apply for a Medical Loan?
To apply for a medical loan one needs to produce basic documentation, viz. valid proofs of identity, income, address and employment. Medical loans are usually offered to employed individuals aged 25 – 58 years having a work experience of 1 year and drawing at least INR 20k monthly salary. Banks and NBFCs evaluate the borrower’s whole family together for determining loan eligibility. Thus, the chances of securing a medical loan are high even if the patient’s individual credit score is not good.
What Credit Score is needed for Medical Financing?
Ideally, a credit score of 700 and above is considered good to fetch loans at affordable interest rates without any hiccups. Once approved, a medical loan is usually disbursed within 24 hours (maximum 3 days) to the hospital/ medical care institution as specified during loan application. Repayment can be easily equated into EMIs like any other personal loan. The EMI amount will depend on the tenure and amount of the loan availed.
What works for you? Can one option replace the other?
Now that you have a fair idea of what the two options entail, we shall discuss their respective benefits and downfalls so you can make an informed decision about your medical funding.
Let’s begin with health insurance policies. A few downfalls of the health insurance policy are:
- There are chances that due to your medical history, either the cost of insurance exponentially shoots ups or you are denied an insurance cover altogether.
- In many instances, claims get rejected in the time of need due to technical reasons specified in the policy (terms and conditions) that may or may not be justified.
- Also, insurance policies do not cover all types of medical treatments and expenses. Cosmetic treatments, Ayurveda treatments, STDs, AIDS, etc. are typically not covered. However, different policies offer different coverage options.
- No discounts are offered by hospitals and other health care service providers when the payment is made through insurance claim
- Though there are cashless options available, some insurance companies may not bear the immediate expenses, rather provide reimbursements on submission of valid proofs. In such cases, arranging for money becomes a challenge.
Despite the above limitations, a health insurance plan acts a fairly good financial planning tool. The insurance industry is built on the idea of covering for adversities. So, one would not want to experience such an event just to claim their insured amount. In other words, it just takes one medical emergency to realize the importance of a health insurance policy. Let’s understand this with an example – assume that you are paying INR 15,000 towards an insurance policy to get a medical cover of INR 4L and you do not raise a claim for 10 years. However, in the 11th year you claim the entire 4L by just paying INR 40K till that point of time. The investment won’t really hurt then, will it? To say the least, a health insurance policy may not seem lucrative until it fills the gap of uncertainty during a medical emergency.
How Does Secured Medical Loan Work?
Talking about a medical loan, it provides an immediate inflow of funds in times of need along with the possibility of getting some discounts on hospital bills. In case you are denied a health insurance or your policy does not suffice for your needs, a medical loan may be a life-saver for you. The major advantages of a medical loan are:
- The money provided as a medical loan can be used to cover any and all medical costs without any terms and conditions. One can avail up to INR 25L through a medical loan.
- Medical loans are easy to apply, get processed and get approved with only basic documentation.
- No collateral or security is mandatorily required for a Medical Loan. However, there is an option of secured medical loans which are backed by some collateral. In case of default, the lender can take ownership of the collateral
- The disbursal of funds is quick and the repayment tenure is flexible based on your comfort
Should you take out a Loan to pay Medical Bills?
Despite its advantages, medical loans cannot be a replacement for health insurance. A medical loan should act as the third line of defense after the first line (health insurance) and second line (contingency medical funds) have depleted. One may argue that paying a claim each year irrespective of the occurrence of medical emergencies is not a profitable option – fair point. But let’s consider the opportunity cost of taking a loan with reference to the above example.
With a medical loan of INR 4L you might have to re-pay, say, INR 4.5L to the lender. This amount of INR 4.5L could have been used to pay insurance premium (assuming constant) for 30 years or put into a Fixed Deposit, the interest from which would suffice to fund the medical bills or the insurance policy itself. Moreover, in cases where long hospitalization is required, how many loans will you avail, or rather will you be able to get? After all, the borrowed amount needs to be returned with interest eventually.
All in all, both health insurance and medical loans can be sought for securing your medical emergencies based on your particular situation and medical profile. If there is a lack of trust towards insurance companies, you may accumulate contingency funds in some kind of saving plan. Unless your medical fund is too big, it may deplete pretty soon while supporting your treatment. Thus, no one option can be the sole vehicle to drive your medical expenses.
Are there grants for medical bills?
In most cases, a medical emergency drains a family financially, mentally and physically. Often they become indebted by borrowing huge amounts of money. To address these challenges, especially for the weaker section of the society, the Government as well as some private Trusts extend financial help to the patients/families by disbursing medical grants. One such initiative is the Prime Minister’s National Relief Fund (PMNRF) which aims to provide financial assistance to needy patients for medical emergencies. A patient needs to fill out an application to avail the grant facility. After due scrutiny and a socio-economic assessment of the family, the funds are provided for treatment at Government/ PMNRF empaneled hospitals at concessional rates.
Some private Trusts (such as Tata Trusts) also provide Medical Grants to the economically backward patients. They are expanding the reach of the grants program by creating a network of government and charitable hospitals, medical personnel and social workers to work at various levels to conduct checks and spread awareness about such grants.
What are the most accepted medical loans and health insurance policies?
Once you have decided to avail the most suitable plan, choosing from a pool of offerings available in the market can be a formidable task. With a myriad of features, add-ons, variants and different payment amounts you may find yourself in a fix. Before finalizing your Health insurance policy, be sure to check out all inclusions, exclusions, and conditions of the policy that fits your budget and needs.
Which is best medical insurance?
Based on our research, below are a few health insurance policies (in no particular order) that are quite popular in the market:
1. Aditya Birla Health Insurance – Active Assurance Diamond Plan
2. Bajaj Allianz Health Insurance – Health Guard Plan
3. Max Bupa Health Insurance – Companion Individual Health Plan
4. Star Health Insurance – Family Health Optima Insurance Plan
5. Religare Health Insurance – Care Health Plan, Critical Illness Plan
6. HDFC Ergo Health Insurance – Health Optima Restore Plan
Most of the above are private insurance companies. If you trust PSUs better then there are a couple of options such as – United India UNI Criticare Health Insurance, New India Assurance Senior Citizen Mediclaim Policy, SBI Health Insurance, National Parivar Mediclaim Plus, and LIC Jeevan Aarogya – that you can consider.
We also looked at medical loan options offered by a few leading banks and financial institutions. Below are the most popular options based on interest rates, loan amount and tenure:
|Lender||Loan Name||Min. Interest (p.a.)||Max. Loan Amount (INR)||Tenure|
|Bajaj Finserv||Personal Loan for Medical Emergency||12.99%||25 lakh||24 months to 60 months|
|Tata Capital||Medical Loan||11.25%||75,000 to 25 lakh||12 months to 72 months|
|Fullerton India||Salaried Personal Loan for Medical Emergency||11.99%||25 lakh||As per the lender’s terms and conditions|
|MoneyTap||Medical Loan||13%||3,000 to 5 lakh||2 months to 36 months|
|Indiabulls Dhani||Medical Loan||11.99%||1,000 to 15 lakh||3 months to 24 months|
The Indian Government also offers medical loans to the people outside the formal banking ecosystem. Under its social healthcare venture – Aarogya Finance, innovative risk assessment tools are used to finance patients to meet their healthcare costs. Aarogya Finance works with the borrower to decide an affordable loan amount and a comfortable payback period (maximum 4 years).
Thus, whether or not you are a traditional banker, there are various options to avail medical loans these days. If there are multiple suitable options, make sure to compare their interest rates and EMIs before applying for the same.
It is, however, still anticipated that the health is given utmost importance and all diseases and illness be prevented to lead a happy and healthy life.