Building a Personal Medical Fund: Meaning, Need, and Financial Benefits

Medical costs in India have been rising faster than most household incomes. Young earners, middle-aged individuals, and retirees increasingly face out-of-pocket expenses despite having health insurance. Many treatments, diagnostic tests, and follow-up procedures often fall outside insurance coverage limits. This is where a dedicated medical fund plays a crucial role.

A medical fund acts as a financial cushion that supports and enhances your health insurance plan. It prevents medical bills from derailing long-term financial goals and ensures that healthcare needs are met without unnecessary financial stress.

Why Health Insurance Alone Is Not Sufficient

Health insurance is the first line of defence; it shields your savings from major hospitalisation expenses. It also enables cashless treatments, reduces the burden of paying upfront, and protects your larger financial portfolio.

However, insurance has limitations such as:

●       Sub-limits and exclusions

●       High deductibles

●       No coverage for OPD or regular health checkups in many plans

●       Restrictions on pre-existing disease waiting periods

●       Room rent caps that may lead to high extra charges

Because these gaps can result in substantial out-of-pocket spending, relying solely on insurance may not be enough.

What Exactly Is a Medical Fund?

A medical fund is a separate pool of money reserved only for healthcare-related expenses. It is self-created, flexible, and entirely under your control. Unlike insurance, which works on premiums and conditions, a medical fund is a personal reserve that you can access anytime.

A medical fund can help you pay for:

●       Treatment expenses not covered by insurance

●       Deductibles and co-payments

●       Medicines, tests, and consultations

●       Dental, optical, and other OPD needs

●       Long-term lifestyle-related treatments

●       Emergency medical situations

It complements your insurance policy by filling the gaps and ensuring that medical emergencies do not disturb your primary savings.

Why You Should Maintain a Medical Fund

1. Acts as an Extension of Your Health Insurance

Even the best insurance policies may exclude certain treatments or impose caps. A medical fund covers expenses falling outside policy limits, including room rent differences, non-payable items, or follow-up care.

2. Guaranteed Access Without Conditions

Insurance approval can sometimes be delayed or partially rejected. A medical fund offers immediate liquidity without paperwork or eligibility checks.

3. Crucial During Retirement Years

Healthcare needs generally rise after the age of 50. Insurance premiums can become expensive and pre-existing health conditions may require additional spending. A medical fund ensures retirees do not dip into pensions or long-term investments.

4. Useful for Individuals With Health Risks

Lifestyle-related illnesses, hereditary conditions, or chronic medical issues can lead to higher medical spending. A medical fund helps manage recurring costs that insurance may not fully cover.

5. Support for Limited Insurance Coverage

People with basic, employer-provided, or low-sum insured policies can use a medical fund to close gaps and avoid financial shortfalls.

Medical Fund vs. Health Insurance: Key Differences

Both work best together, forming a strong two-layer protection plan.

Who Should Prioritise Building a Medical Fund?

Young Working Professionals

Though usually healthier, young adults still face expenses like dental care, minor surgeries, or accidental injuries, which insurance may not cover fully.

People Approaching Retirement

Healthcare inflation is highest in the 50+ age category. A medical reserve helps manage rising costs without affecting retirement investments.

Those With Pre-Existing or Chronic Conditions

Regular check-ups, medicines, and therapies can become expensive. A medical fund provides steady support.

Individuals With Low or Basic Insurance Plans

If sums insured are low, especially under employer-provided policies, a medical fund becomes important to prevent financial gaps.

How Much Should You Set Aside in a Medical Fund?

Creating an effective medical reserve requires planning around your lifestyle, dependents, and financial responsibilities. Experts generally recommend keeping 6 to 12 months of essential living expenses in a medical or emergency fund. Individuals with dependents, unpredictable income, or no health insurance should stay on the higher end of this range.

Recommended Size of a Medical Fund

●       Single individuals with health insurance: Maintain 3–6 months of essential expenses to cover out-of-pocket costs like medicines, doctor visits, diagnostics, and items not included in insurance.

●       Families, dependents, or self-employed individuals: A fund covering 9–12 months of essential monthly expenses is ideal, as medical needs and income uncertainty can both be higher.

●       Essential expenses include: Rent or EMIs, groceries, school fees, insurance premiums, utilities, and other fixed monthly commitments.

Healthcare inflation in India averages around 14% per year, so those concerned about rising medical costs or caring for vulnerable family members should maintain a larger buffer.

Important Considerations Before Building Your Medical Fund

It Requires Active Planning: Unlike premiums, the fund does not refill automatically. You must add to it regularly.

Estimating Future Healthcare Costs Can Be Tricky: Medical inflation varies by location, lifestyle, and age. Review and adjust your fund amount once every year.

Keep It Easily Accessible: Investments for this fund should focus on liquidity, such as:

●       Liquid mutual funds

●       High-yield savings accounts

Short-term debt funds

Do not invest your medical fund in market-linked assets with high volatility.

Conclusion

A medical fund is an essential part of modern financial planning. While health insurance helps handle large hospitalisation costs, a medical fund provides flexibility, immediate access, and coverage for expenses outside your insurance policy. Whether you are at the beginning of your career or preparing for retirement, having a dedicated medical reserve strengthens your financial security and ensures you are prepared for unexpected medical needs.

If required, you may also consult a financial planner to estimate the right amount and choose suitable instruments for maintaining your medical fund.

Disclaimer: The article is for informational purposes only and not investment advice.