The novel coronavirus pandemic has taught us the importance of having funds at one’s disposal to tackle a medical emergency. With Covid-19 we have seen that costs can shoot up sharply not just during the treatment of the infection, but medical expenses can be high for treating post-Covid complications as well.
Many think that having a health insurance policy can come to their rescue during such medical emergencies. However, with medical costs being sky-high, in many cases health insurance will not be enough and such people will be left running pillar to post trying to arrange for funds.
To prevent this sort of a situation, here is a look at emergency funding options over and above a health insurance cover.
Health insurance not a silver bullet
While a health insurance cover can help to a large extent in many cases, however there are various scenarios when you would need to spend a good amount of money from your own pocket.
“The final claim amount settled by a health insurance company can be significantly lower than the total hospitalisation or treatment costs incurred by the insured. This could be due to the features of the insurance policy, such as provisions of co-pay, limits on room rents and various sub-limits on health treatments and procedures,” says Naveen Kukreja – CEO& Co-founder, Paisabazaar.com
“In the case of Covid 19, the government had put a cap on the cost of treatment and insurance companies were not ready to pay beyond those limits In spite of this, private hospitals were charging much more and therefore, in many cases, people had to spend 40-50% of the expenses out of their pocket, despite having a health insurance policy with adequate sum-assured,” says Rishad Manekia, founder and managing director, Kairos Capital, a SEBI registered investment advisor.
Another aspect which becomes critical is access to a cashless network hospital. For instance, if the most convenient cashless hospital is designated to a covid hospital and you are dealing with a non-covid medical emergency and find it difficult to go for the next best cashless network hospital, you may have to opt for a non-network hospital and pay the entire cost from your own pocket. You will have to take the reimbursement route where it could take weeks for you to get the money back.
Whether you have insurance or not, if you need emergency funds, then the highest priority in such a situation is to opt for a route that lets you access funds quickly. Here are 10 options in order of time to access funds.
1.When credit card works best for you
“For those having credit cards, the quickest funding option to deal with medical emergencies would be to swipe their credit cards and then repay the incurred expenses by the due date of their next bill. Paying the entire credit card bill by the due date would save them from incurring the steep interest cost in the form of credit card finance charges,” says Kukreja.
Do keep in mind that if you are not able to pay off the dues on time, the revolving credit of a credit card could be one of the mostly costly borrowing options as annual interest rates can go up to as high as 42%. “This must be done with utmost caution because there must be sufficient assets to clear off dues and the funds must be accessible before the repayment on the card comes due because if the debt is not cleared then that can lead to high penalties and interest charges which can spiral quickly,” says Manekia.
This is a good option when the treatment is being done through the reimbursement route as the credit card can give you a window of up to 45 days of interest free credit period after which you can pay it back post receiving the reimbursement from the insurer.
However, if you are not able to pay off the entire amount by the due date, it is better to convert your dues into EMIs. “Credit card holders who cannot repay their entire bill by the due date can convert the entire bill or a part of it into EMIs as per their repayment capacity. The tenure of such EMI conversions can go up to 5 years and their interest rates are much lower than the finance charges levied on unpaid credit transactions,” adds Kukreja.
2. Loan against credit card
If you are sure that you will not be able to pay back the entire dues by the due date, then going for a loan against your credit card could be a better option. Many credit card providers offer their customers pre-approved loans which can be useful in such a scenario. “These are pre-approved loans and are usually disbursed within a few hours of making the loan application online,” says Kukreja.
However, you have to be watchful of the costs as the interest rate and other charges may be on the higher side. If you have multiple credit cards compare their interest rates and processing fees and go with the one that has least total cost for your preferred loan tenure.
3. Fintech loans are easy but costly
Those who are finding it difficult to get a credit card or loan approved from a bank, can approach a fintech lender. These entities offer loans even to those with low credit score.
“Fintech companies are usually less stringent than large banks and NBFCs while evaluating personal loan applications. These companies can approve personal loan applications that are otherwise rejected by large banks and NBFCs due to lower credit score or risky credit profile. However, to compensate for their higher credit risk, these fintechs usually charge much higher interest rates on their personal loans,” says Kukreja.
The interest rate for most of the borrowers is usually on the higher side of a typical range of 14-21.48%. Opt for this route only when other cheaper options are not working for you. While picking the loan it is better to compare the charges and go for the one not only with lowest interest rate but also with lowest foreclosure charges so that you can close the costly loan whenever you have sufficient money.
4. Preapproved instant personal loans
Based on credit history and banking relationship many lenders, both banks and non-banks, offer pre-approved loans to limited number of customers.
“While disbursals of personal loans take between 2-5 days of making loan applications, pre-approved personal loans offered by banks and NBFCs can have near instant disbursals. Many banks have developed capacity for end-to-end digital processing of their personal loan applications. This has allowed these financial institutions to speed up their personal loan evaluation and disbursal processes,” says Kukreja.
To check this option you can go to a loan aggregator website where you can find all pre-approved options at one place.
5. Pre-approved instant top-up home loan
If you have an active home loan account you should not forget to check your eligibility for a pre-approved top up loan. “Many lenders have started offering pre-approved instant top-up home loans to their existing home loan borrowers claiming disbursals within the same day of loan applications” says Kukreja.
While being pre-approved you can get the loan quickly and it comes with one of the lowest rates, longest tenure and nil foreclosure charges.
6. Covid special personal loan
Many banks have started offering special personal loans to those have been infected with Covid-19. Banks like SBI, PNB, Bank of India and Union Bank of India have launched such loans at competitive interest rates and could be good options for eligible borrowers.
For instance, SBI’s Kavach Personal Loan covers expenses of COVID treatment of self and family members of the customer. Customers can avail this loan of amount starting at Rs 25,000 up to Rs 5 lakh and comes with an interest rate of 8.5% and no prepayment or foreclosure charges. Click here to know more about SBI’s Kavach Personal Loan.
In case these special loans do not work in your case, you may go for offline conventional personal loan. “Remember that the interest rates of personal loans are usually lower than the interest rates of credit card EMI conversions or credit card loans available from the same lender. Hence, those having medical emergencies should also contact their existing lenders and the online financial market places to find out the various personal loan options available on their credit profile” adds Kukreja.
Quickest secured loans
When you have limited time to arrange emergency funds unsecured loans are quickest route. However, if you have some time on your hands, then secured loan options can come in handy.
7. Loan against FDs: There are many investors who would have locked long term FDs at a higher rate and if they go for liquidating these FDs they will lose on interest and pay a premature withdrawal penalty. Instead, if you have a bank FD locked at a good interest rate it is better for you to take a loan against it which will come at a much lower rate. For instance, if your bank FD is earning 7% interest you can easily get a loan at 8% from the bank.
8. Gold loan: “Those who cannot avail personal loans can pledge their gold jewellery or existing long term investments to raise finance for medical emergencies. While gold loans are usually disbursed within the same day, the disbursal of loan against securities usually takes longer,” says Kukreja.
9. Loan against shares, MFs and insurance: Your investment in shares, mutual funds and life insurance policies can also be used to get a loan without liquidating them. You can approach the bank with which you have a long-term primary relationship to get a loan against these securities.
10. EPF Advance
You can get a non-refundable advance on your Employees’ Provident Fund (EPF) corpus for up to your 3 months basic salary (including DA) or 75% of total credit balance against your EPF contributions, whichever is less. Though the EPF has a window of 20 days to disburse the advance, automation has helped in disbursal of the advances within 3 days.
While most experts do not recommend using your retirement funds during an emergency, but when you do not have any other option working, this could be an option of last resort.