Should health insurance be considered as a tax saving instrument

Thursday, March 2, 2017

Should health insurance be considered as a tax saving instrument

This is that time of the year when most of you must be busy in exploring investment options to get the maximum tax benefits. After exhausting the limit of Section 80C, people are looking at Section 80D i.e., health insurance to save tax. The premium paid towards health insurance can be availed as a deduction up to Rs 25,000, from the total income under section 80D of the Income Tax of India. The deduction is available with respect to premiums paid for self, spouse, and children. For parents, an additional Rs 30,000 is allowed as deduction if your parents are senior citizen, if they are not senior citizens yet, then Rs 25,000 deduction is allowed.

But, should one ‘invest’ in a health insurance policy to save tax? 

Current Scenario

Given the importance of health or mediclaim insurance, India is still lagging on the health insurance penetration. This is because people are still unaware of the benefits and importance of having a health insurance policy. Around, 80% of the people in India are not covered under any health insurance plan.

Also, out of 20% of the people who have a health cover, they consider it as a tax-saving instrument only. They ‘invest’ their money in health insurance so that they can save some tax at the end of the financial year.
Most of the people do not even consider buying a right amount of cover, and end up buying a lower insurance coverage. Such practice defeats the entire purpose of buying the insurance. 

Objective of a health insurance:

The main purpose of any insurance product is to offer protection against any financial risk. Health insurance basically helps you financially in case of medical emergency. It makes sure that you and your family gets best medical care in case of any health-related issue without incurring any financial debt. You might not get the benefits of a health insurance immediately, but you will understand its importance, if God forbid, you require medical care.

Why do you need a health insurance?

Health insurance has become essential for everyone these days due to the following reasons:

·         Rising medical inflation: As per an insurance portal, the cost of medical treatment has increased by almost 50% in the last five years with the per capita income just increased by 25%. So, it means, you need to spend more money on hospitalisation and treatment than before.

·         Increasing life expectancy: The average life expectancy in India has increased to 67 years from 62 years in the recent years. It means, people may require medical treatment for a longer duration in their lives.

·         Lifestyle diseases: Indians are witnessing more of lifestyle diseases these days due to a shift in daily life. The increased stress level, junk food, long working hours, etc. all these are giving rise to health issues among people these days.

Hence, health insurance is a must buy instrument to get excellent medical treatment without worrying about the expenses.  


There is always a pressure to get the tax-saving components by the end of the financial year and there is no doubt that health insurance is a very popular tax saving instrument.  But, one should not forget that the purpose of a health insurance policy is far wider than just tax saving. It is meant to provide financial security in case you and your family needs any medical help. So, instead of buying lower health insurance coverage to get tax benefits, make sure to protect you and your family with sufficient coverage. Every health insurance plan has its distinctive feature and therefore, it is necessary to make a suitable comparison. 

Consider whether you should go for a family floater or an individual plan for each member of your family or whether you should have a specific critical illness cover to get protection against ailments like cancer, kidney failure, heart attack, etc. Remember, choosing an adequate sum insured is imperative. Under-coverage is as bad as no insurance at all, since you might have to undergo financial stress if your policy doesn’t offer you complete coverage when the need arises. 

The lure of tax benefits and the hurry, especially during this time of the year, can push you to take some unwanted decisions. Without comparing, you may choose the policy just to save tax. However, I would advise you to do a proper comparison and choose the best health insurance policy that comes with benefits like, strong network hospital, wider coverage, etc. Consider tax benefits only as a topping on your health insurance plan!

Author: Swaraj S

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