Health Insurance Vs. Medical Loan: Which One is Best for You?

Choosing between an individual health insurance plan and a medical loan is as difficult as you may think. Tap to find out which approach is perfect to navigate medical emergencies.

Health insurance vs. medical loan: Which one should you choose?

Medical emergencies often strike when you least expect them. Whether it is an accident, sudden hospitalisation, or a serious illness, it is natural to feel overwhelmed when navigating such scenarios. Adding to this, the cost of treatment is a significant concern. In the face of such a crisis, there are two routes you can choose from: Use health insurance or risk spending the money out of your pocket. Another option is a medical loan. Given the choice between health insurance and a medical loan, which should you choose?

The commonality between health insurance and medical loans is their purpose. Both are used as a tool to cover medical expenses. However, they work in different ways. While one provides financial protection upfront, the other offers immediate funds when required. Read on to explore the health insurance versus medical loan debate, starting with the fundamentals.

What is health insurance?

Health insurance acts as your financial cushion that provides coverage for medical expenses in exchange for a regular premium. It ensures you avoid out-of-pocket expenses that can cause financial stress. Depending on the plan, health insurance may cover pre- and post-hospitalisation costs, surgeries, medicines, and more.

Here are the common types of health insurance plans:

1. Individual health insurance: Covers only one insured person.
2. Family floater plan: Provides coverage for more than one family member in one policy.
3. Senior citizen health insurance:  Senior citizen health insurance covers a lump sum in case of a life-threatening illness.
4. Group health insurance: Designed for employees.
5. Critical illness insurance: Offers coverage for individuals above 60 years.

How does health insurance work?

Health insurance coverage is provided in exchange for a regular sum called premium. This premium is payable on a monthly, quarterly, or annual basis, depending on the plan and the provider. In case of a medical emergency, the insurer covers expenses based on the terms and conditions mentioned in the policy. The coverage often comes with limits, meaning the insurance provider will only pay up to a certain amount per year. Moreover, health insurance plans also have the cashless treatment option which can be availed at network hospitals.

What is a medical loan?

A medical loan is a type of personal loan specifically used to cover healthcare expenses. Unlike health insurance policies, which require premiums for financial protection, medical loans provide immediate financial aid as a lump sum.

Here are the types of medical loan:

1. Secured medical loan: Offers funds in exchange for a collateral (gold, property, etc.) and charges low interest rates.
2. Unsecured medical loan: Requires no collateral but charges a higher interest rate.
3. Instant medical loan: Disbursed quickly for urgent needs.

How does medical loan work?

To obtain a medical loan, you must first apply when a medical emergency occurs. The lender approves the loan, considering factors such as your credit profile and repayment capacity. Once approved, you get the funds credited to your account and repay the loan through monthly installments (EMIs) with interest.

Pros and cons of a health insurance

Pros	Cons
Covers medical costs without out-of-pocket spending.	Coverage is limited to the sum insured amount.
Provides financial security in the long run, offering peace of mind about the future.	Requires the regular payment of premiums, even if you don’t make a claim.
Offers cashless treatment as network hospitals.	Has waiting periods.

Pros and cons of a medical loan

Pros	Cons
Provides instant financial help.	Requires strong credit history for approval.
Can cover non-hospitalisation costs.	Charges an interest rate along with the repayment amount.
Poses no limitations on the money used.	May become a financial burden in the long run due to monthly EMIs.

Health insurance vs medical loan: Which one is right for you?

As discussed, both health insurance and medical loans have advantages and disadvantages. The choice between these options depends on individual needs and financial planning.

Here is when you should choose health insurance:

• You want a pre-planned financial coverage against medical expenses.
• You have dependents and want health coverage for your family members.
• You are looking for tax benefits (under Section 80D of the Income Tax Act, 1961).

Here is when you should choose a medical loan:

• You don’t have an active individual health insurance plan.
• Your insurance coverage is not sufficient to cover medical bills.
• A particular illness or treatment is not covered under your plan.

Final verdict: Health insurance plan goes a long way!

Health insurance provides financial security, reducing the risk of debt. It is a more cost-effective and secure option compared to taking a loan in a medical emergency. With pre-planned coverage, treatment can be accessed without the burden of future EMIs.

Therefore, we recommend a comprehensive health insurance plan future security. However, a medical loan can serve as a temporary solution if insurance coverage is insufficient.

(Disclaimer: Devdiscourse's journalists were not involved in the production of this article. The facts and opinions appearing in the article do not reflect the views of Devdiscourse and Devdiscourse does not claim any responsibility for the same.)