Wednesday, December 03, 2014

Medical Insurance with Money Back plan

I live in a world where each passing day my medical bills keep increasing, sometimes due to bad life choices and sometimes due to corporate avarice. I pay our annual insurance bill out of my salary, and keep my fingers crossed that nobody in the family falls sick. Also I know how difficult it is to get insurance claims sometimes - claims denied, claims not paid on time, coverage not applicable to our elderly parents who need it the most. Lately I have also realized that the coverage offered by our company doesn't seem enough so I have been mulling over a "top-up" medical insurance.

So after mulling over it some, I had an epiphany that would allow me to sleep more peacefully and yet will take care of the medical needs of my family in the years to come.

What industry benefits when we fall sick? Pharmaceuticals. What industry benefits when we want to stay healthy? Pharmaceuticals. What industry benefits when we want to become fitter? Pharmaceuticals. So the epiphany I had was why should I not buy some pharma stocks and gain from their gain? The question that came back is how profitable would it be? Will it compare favorably with getting medical insurance? Is it possible to beat the insurance coverage provided by the health policies. Well, as it turns out, its not easy but it can be done - not in the short term but definitely in the long term.

I am not that well versed with financial statements and all the "research" tools adopted by my friends who work in core finance. But I do have the common sense to look around and find out which are some of the decent pharmaceutical companies. Also my family has some connection with pharma industry. Based this amateur knowledge I went looking for pharmaceutical companies and picked up two randomly - Cipla and Sun Pharma - and ran some numbers.

I first take the stock price of these companies every year for the last 10 years on Nov 25. I then buy stocks worth 10000 every year. Here's what I found. For an investment of 1,00,000 over the period of last 10 years, Cipla is currently worth 2,71,000. That's a 11% return compounded annually over a decade. That's probably the medical cover provided by my group life insurance. If by some chance I had instead picked up Sun Pharma the current value would have been 6,87,000. That's a 21.5% return over the last decade. And certainly more than any medical cover given by any group health cover.

On the other hand if I had disregarded medicine and was more of a believer in general health and fitness, I should've recognized Horlicks, Eno, Iodex, and others. For the company is called GlaxoSmithKline and the same 1,00,000 over the past decade would have returned me 7,14,000. An even nicer 21.8% annually. And all these are excluding any dividends. Plus these are long term gains so I don't pay any taxes.

Now here's the zinger. This is money just in a decade. Over 4 decades out compound like crazy. No medical insurance policy will ever match it. It becomes ever more important because as we grow old insurance becomes costlier. After a certain age I may actually find it difficult to get insurance. But this investment can become much more than that. And if I keep healthy this money is mine to keep - a money back policy.


Sunny Kollu said...

Nice article but some critic queations.
1) what if u were sick jn 1st year and needed 2 lks for your treatment.
2) what if you were sick every year and needed 1-2 lakhs for treatment every year

Suchintya said...

I am currently employed and have medical cover. The money that I build up is "top-up" and long term insurance.

Also, these are ways of discovering stocks to buy :)

Vikas Pandey said...

I am totally in agreement with you