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Why Buying Health Insurance For Tax Benefit Doesn't Work

16/04/2015 5:01 PM IST | Updated 15/07/2016 8:25 AM IST
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A Pakistani health worker gives polio vaccine to a child at a neighborhood of Lahore, Pakistan, Tuesday, April 14, 2015. Pakistan’s beleaguered battle to eradicate polio is threatening a global, multi-billion dollar campaign to wipe out the disease worldwide. (AP Photo/K.M. Chaudary)

Amidst huge industry expectations, this year's union budget was presented. The insurance sector saw a few impactful announcements that positively stirred the industry. With the beginning of the new financial year, it now brings about the changes in to effect that were announced for the insurance sector during the Budget. While there has been a general good feel about the increase in health insurance limit from Rs 15,000 to Rs 25,000 for people aged 18 to 60 years and cap increase from Rs 20,000 to Rs 30,000 for senior citizens, whether the same is beneficial for people at large is debatable.

The overwhelming verdict is that this is definitely a step in the right direction by the government, however as an individual, one has to tread with caution and not jump into the ecstasy of saving tax. Here are all the aspects that you must know pertaining to this clause before you buy health insurance for yourself or your loved ones.

Caution for People below 35 years

The new limit may not be too useful for those below the age of 35 years. For instance, a regular Rs 10 lakh health plan costs around Rs 7,000 for a 30-year old. To exhaust the limit, one would have to buy top-up covers for critical illnesses and hospital cash benefit. One can opt for policies that offer cover for out-patient department (OPD) or day-care procedures to better utilise the Rs 25,000 limit. Premiums for such covers are almost thrice that of a regular health insurance cover. Those opting for family floaters of Rs 10 lakh and above will also have to pay a premium that is close to Rs 25,000.

Value vs Tax Benefit

People should take this increase of limit with a pinch of salt. Don't go all out to save the tax and opt for a policy or add-ons that are not of much value to you. Invest in health insurance plan with value as the determining factor otherwise at the end of the day it will be a waste of your hard-earned money. You can only buy as much as you need.

Catch for Senior Citizens

I heard lot of youngsters now talking about buying a health insurance for their parents. Now that is a good social sign ;-) Senior citizens usually bear expensive medical costs and thus opt for higher premium plans. This change in cap will relieve some of the tax burden from their shoulders.

Stimulus for Awareness

These announcements have surely helped insurance sector penetrate through masses. People, undoubtedly have started talking about health insurance. This is definitely a good thing for the insurance sector overall for the sector is suffering from the problem of under-penetration.

Having a medical insurance is a good thing but buying it just for tax exemption is not. That's the final word in this debate.

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