Let me talk about Medical Insurance policies. It seems a real good idea about saving for one’s future medical expenses. Except that there are few hurdles along the way:

1. Our own longevity - everyone wants to live longer and is living longer. But the corollary is as one gets old, if one gets sick, will your savings provide enough to take you through?

2. There is something called Medical Inflation as against the general Inflation. Against a relatively low general inflation rate, medical inflation rate goes at almost 14% per annum. The impact of it will be like:

As per HDFC Ergo, today’s cost of Heart Surgery varies from Rs. 1.50 Lakhs to Rs. 3.00 Lakhs. In 5 years time, at an average cost of Rs.2.00 Lakhs that is today, will cost only Rs. 3.20 Lakhs and 10 years down the road, it will be around Rs. 5.20 Lakhs assuming a 10% medical inflation.

A cataract that used to cost Rs. 16,000 in 2012–12 costs around Rs. 25 k today.

So one can figure out for other medical ailments.

3. Now assuming that you are indeed saving regularly through a dedicated SB account, to meet a medical contingency - you need to save up at Rs. 10 to Rs. 15 Lakhs because it is going to cover you, your spouse and dependent children and may be parents. Put at least Rs. 5 Lakhs per head.

Ok. Now you have saved. But at what cost ? For the savings, you will get an interest of 3%? What was the medical inflation rate: at the minimum 10%? So in reality, your value of savings is actually going down by 7% every year. That is point # 1.

Next point: This amount if you had invested elsewhere, could have got you returns, that are much better than the 3%? So, you have an opportunity cost as well.