Emergencies always come unannounced. The ensuing panic causes even more casualty. When the crisis hit, a person’s “flight or fight” response is activated. He begins to take irrational decisions that do more harm than good. We are helpless against natural emergencies, but we can be prepared for financial emergencies that can wreak havoc in our lives.
Buying insurance may not be enough; you should build a medical corpus for several reasons. Conceiving the idea of building a corpus may be a daunting task for you if you hardly save money. Fortunately, it is possible to build a medical corpus even with the little you have. To build a corpus for your health-related needs, a systematic but steady investment approach is needed. You may be asking yourself the question; why should I get a medical corpus?
The issue of critical ailments has increased in recent times, so also are the costs of health care treatments. Eating the right foods, exercising regularly, and even meditating are just a few steps people like you take every day to reduce the risks of severe ailments. In addition to taking healthy steps toward healthy living, you need sustainable financial planning to meet your healthcare exigencies.
Why Do You Need To Build Medical Corpus?
Costs of healthcare treatments have continued to rise at exponential rates all across the globe. These costs have continued to add more financial burden and misery to a lot of people. To make healthcare more affordable to the people despite the rising costs, the government has put in place affordable schemes that will cover individuals and families in the United States
The discussions around the numerous government and private healthcare schemes have brought back the need for a medical corpus. For example, most medical insurance providers may only cover up to 75% of your medical expenses, and in most cases, some life-threatening infections or diseases such as cancer and diabetes may not be covered by your type of insurance. For these reasons, you will have to dig deep into your savings to complement your medical insurance.
In many cases, families may have to resort to borrowing and taking loans after exhausting their medical insurance, just to cover their medical bills. It is therefore important to prepare yourself for unforeseen medical expenses by setting up a Corpus for yourself and your family.
In addition to complementing your health care insurance, a Medical corpus will help you have total control over the spiraling medical debts incurred. Having a dedicated plan like a health corpus for your health will guaranty financial independence especially when you grow older and unable to work as hard as you used to.
Even if you take every step to stay healthy and fit, certain medical conditions are quite common as you advance in age. If your savings are just not enough to meet this age-related medical issue, you may have to rely on family, friends and even your bank to cover your medical expenses.
Corpus cannot serve as your main source of payment for your medical expenses, but can surely fill the gap up when your health insurance tends to be insufficient for such expenses.
Main Reasons Why You Need a Corpus for Your Medical Expenses
There are five main reasons why you should have a corpus even if you have health insurance, these are;
Health insurance for even a few dollars can be very expensive and it will always increase as your age increases. Your health insurance may also increase suddenly of the insurer faces an extensive underwriting loss. Simply put, an underwriting loss is a total sum remaining after deducting claims paid by the insurance from premiums collected.
Your health insurance will only cover your medical expenses, but there are lots of non-medical expenses you will account for while undergoing treatments. Non-medical expenses may account for between 5 and 20% in most cases, and in other cases, it can be more.
Your health insurance will not cover the management of your new life disease. This means changes in your lifestyle as a result of a long-term disease will cost more in the long run. For example, you daily, weekly or monthly expenses for the management of diabetes, and heart problems will not be taken care of by your health insurance. You may want to use a free online chronic illness daily management calculator to understand this issue properly, in financial terms.
Your critical and non-critical health costs can run into several thousands of $US within days or months. Your health insurance will only cover a certain percentage of such, but a Corpus can be your life-saver in such periods. Having a critical illness cover can be very expensive and it comes with narrow coverage.
Premiums will likely increase if your insurer has reported a loss though, this may give you the opportunity of increasing your medical cover but it still wouldn’t cover all medical conditions.
How to Create Medical Corpus
Below are some of the sustainable and practical steps to ensure that you don’t have to compromise on your health care challenges.
1. Set aside a Corpus Fund
Statistics have shown that the average American household spends not less than 10% of their regular income on health care expenses. If you have a regular or active source of income, you will likely meet these expenses but when there is no active source of income, especially after retirement, and then it could be a challenge to set aside a certain 10% of your income as a corpus fund.
Unpredictable medical expenses can become a huge drain on your savings; hence you may want to increase your corpus fund from 10% to at least 15% to cover those periods you wouldn’t get regular income.
You need to calculate your annual medical expenses, first of all, and you can arrive at the right figure by including regular expenses from doctor’s visits, the regular medical checkups, the costs of medications, and consultations. You must also include other costs such as gym membership, costs of physiotherapy sessions, childbirth, and costs of certain treatments for hereditary conditions. The costs of your lifestyle decisions must also be included.
The minimum figure you arrive with all the calculations must not be higher than the 10% Corpus funds you have just set up. It is important to keep in mind that building this corpus fund may take some dedication and effort.
2. Don’t Run Your Health Fund as a Retirement Fund
To make your Medical corpus fund very successful, you should not see it as a retirement fund but a fund to complement your medical expenses.
A retirement fund is set aside to help you maintain a quality of life once you are not making a regular income. Setting up a fund known as a corpus will serve as a cushion for your health insurance and after retirement. For this reason, you don’t have to adjust your lifestyle quality as a result of the pressure placed upon your finances by medical expenses.
To this end, you must not compromise on the minimum standard or size of your corpus fund to fund another. In this case, the minimum fund you should set aside for your Corpus funds is 10% of your regular income.
3. Invest to Build Your Health Corpus Fund
To build a corpus for your health-related needs, you should take a systematic investment approach. As mentioned before, you should set aside a minimum of 10% of your regular income for the corpus funds, then this amount set aside should be invested in equity or debt instruments to increase the funds steadily.
Investing the corpus fund in mutual funds may also be an ideal option of increasing your returns while spreading your investment risks. You must use the liquid cash in your Corpus fund to ensure liquidity and protect your capital at the same time. It will also make a lot of sense to invest your corpus funds in a long-term investment option, this will help discourage withdrawal of the funds for unnecessary purposes in the short term.
Investing your corpus funds in a long-term investment will help you accumulate funds that will be useful in later years, especially for your medical expenses. This investment will ensure that you are not thrown off-balance by your short-term expenses. An example of a long-term investment for your corpus fund is the National Pension Scheme, which is designed to provide long term investment returns.
While some long-term investments may allow you to take a partial withdrawal from the funds after a few years, options like National Pension Scheme will only allow you to withdraw your capital and profit after retirement. The longer the investment term, the more returns you will get over your investment and that is one reason why you should invest your corpus savings in such instruments.
The payoffs from your corpus funds investment can be allocated towards the settlement of your health treatment bills or some other expenses.
Example of a Viable, Practical and Sustainable Medical Corpus Fund Investment
If for instance, you choose to invest your Corpus fund in a Mutual fund, with a 20-year goal, with a minimum monthly contribution of $200 which is 10% of your regular income into the Corpus funds. Currently, the average annual return on Mutual funds in the United States of America
This means that if you save $200 monthly in your corpus fund or savings, you will be able to save up to $1200 in a year. In 1 year, this saving would have grown to $1356. If you decided to compound the interest and leave the funds for the next 20 years before your retirement, your corpus funds would have grown into a minimum of almost $40,000. This is quite a lot of money that can help you complement your health insurance cover.
There are better investment options you may consider but keep in mind that the higher the interest rates on investments, the higher the risks involved.
As a low earner, you should not invest your corpus fund simply because you want to save money on taxes. Investing your funds solely with the aim and objective of saving on tax may prevent you from making the right choice of investment.
The equity mutual funds are indeed the best tax-saving investment options for long-term investment returns for your Corpus funds, many people may be enticed to exit such investments after the initial 3-year lock-in period.
Doing this can interrupt the potential to make more money by compounding your interests over some time. You should develop a mindset that you wouldn’t spend out of the investment until after retirement. Doing this will surely make your corpus funds very useful for your health treatment.
To enjoy a high degree of liquidity as a small investor, you should stick to the minimum 10% monthly contribution. If you can afford more than 10% monthly contribution to your corpus funds, then you will surely reap even higher benefits. There are some more viable long-term investments that are better than mutual funds, be sure to contact your financial adviser on these.
4. You Must Have a Health Insurance
Many people do think that once they have a corpus fund, they don’t need health insurance. This is a misconception because a corpus is designed to complement other funds like health insurance and should not be a standalone fund.
Another myth about health insurance is that it is only for older people. In actual sense, the earlier you start a health insurance cover, the better and larger the coverage you will get. First of all, getting health insurance while you are younger is cheaper than when you attain 45 or 50 years of age. The older you get, the costlier your health insurance cover.
Secondly, since you are not likely to have a serious medical condition while you are younger, you can easily get medical insurance for low price, except you indulge in habits like smoking and excessive drinking. Also, you have a better chance of securing a good insurance cover when you don’t indulge in activities like extreme sports such as sky-diving or car racing.
It will make more sense to have health insurance first before you start saving through a Corpus. Since medical emergencies are not only for the aged, every person will need health insurance at some point.
When medical insurance is not available, you may exhaust all your savings on a single medical emergency. Your emergency health savings may also have a negative effect on your quality of life when you don’t have a backup plan.
One other point you should keep in mind is that you must not rely solely on single medical insurance offered by your employer. The reason for this is that the amount covered under medical insurance offered by most employers may be inadequate. You must note that an employer's medical insurance will cease once you retire or resign from the job.
You should decide on the type of health insurance you want based on your personal and future requirements. Keep in mind that payable monthly, quarterly, or yearly premiums will increase with age but you can always upgrade or downgrade your policy based on your current situation.
If you have dependents you should rather go for the floater policy that is flexible and changeable. You should read the information on the insurance cover and be clear enough about the types of illnesses covered. You should also be aware of the hospital network included in the insurance cover and other terms and conditions attached.
If possible and if you have sufficient time, you should compare as many policies as possible and consider getting advice from an insurance broker before you enter into any agreement. You can always increase the level of cover on an existing policy or buy an extra policy without canceling the first cover.
Now that you have a personal insurance cover plus a corpus fund that you are building gradually through long-term investment, you should be able to fund your present or future health care costs conveniently.
You should try as much as possible to buy as large health insurance as possible
5. Invest Your Corpus Funds as Soon as Possible
Time is always an essential factor to consider when it comes to building wealth. The sooner you invest your corpus funds in a viable investment option the earlier you start receiving dividends and the bigger your Corpus get. Your goal is to continue to expand your corpus until the moment you will require it for your medical expenses and the best possible way to do that is to keep re-investing it and avoid taking anything out of it.
6. Increase Your Investment Each Year
Though the minimum you should invest in your corpus is 10%, you may want to increase it by at least 5% every year. You should try and achieve this even if it creates some inconveniences on your finances.
7. Pay Adequate Attention to Your Health
Now that you have your health care insurance plus a sustainable corpus fund, you should not ignore the fact that your wellness will require adequate monitoring. Paying attention to your health by improving your diets and abstaining from behaviors that damage health such as excessive drinking and smoking will go a long way in reducing the risks of expensive medical treatments.
Maintaining good health will not only extend your lifespan, but it will also enhance your happiness. There are several apps available on smartphones and the computer to help track diet and exercise regimen. These apps can display certain information in real-time. For instance, you can see the distance covered during an activity, the number of calories burnt, and your goals and objectives.
Staying healthy will reduce the risks of chronic infections that can raise your health insurance premiums significantly. Many health insurance companies will monitor your fitness levels and your daily habits before selling an insurance package to you.
Mistakes You Must Avoid When Growing Your Medical Corpus
As expected, the number one mistake you will likely make when growing your corpus is to be tempted to withdraw from it. Certain emergencies such as payment of children's educational fees, social event expenses, car replacement, and mortgage expenses, but you should not allow yourself to be distracted and tempted into withdrawing from your corpus investment because it could truncate the entire investment program.
While some investments may allow you to access your funds after some years of investment, others may only allow you to access your funds after retirement. To avoid the temptation of accessing your Corpus investment, you should go for investment options that only allow access to your funds after your retirement or after specific long periods such as 10 or 20 years.
Another major error you should avoid is not seeking investment from a professional. Financial advisors understand the features and risks involve in different investment instruments; they also know the level of returns attached to each of these investments. For this reason, you should seek their professional opinion and don’t just assume one investment is better than the other. What works for someone else may not work for you.
If possible, you should have a separate account for your Corpus and other savings plans such as retirement plans. Having different accounts for different funds will help you ascertain and monitor each of the accounts and will prevent dipping your hand into your Corpus.
Conclusion
For a reminder, it is important to note the essential components of setting up a practical and sustainable Corpus plan. First, it is important to set out a minimum of 10% of your regular income into a corpus savings plan, and then you should invest this in a mix of equity and debt funds to build a health corpus fund that will generate profit and expand your savings. Make sure that you do not reduce the minimum regular contribution to your Corpus fund so that you can build a healthy fund until retirement when you no longer contribute to the fund.
Do not depend on your employer’s health insurance cover; you should consider buying a personal health insurance policy that will complement your corpus fund when needed. You should also maintain good health if you want to lower your payable insurance premium and reduce the risks of expensive chronic infections.
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