3 Types of Financial Protection Plans That You Need to Know
According to WHO, around 996 million people, i.e., 13.2% of the world’s population, spend more than 10% of their household budget on healthcare services. This out-of-the-pocket expenditure has pushed several families and communities below the poverty line. Hence, financial protection strategies like life insurance policies have become very much essential in today’s world as they create a financial buffer which can be accessed in case of medical emergencies faced by the policyholder.
The Covid-19 pandemic has been an eye-opener for numerous reasons. It has underlined the importance of maintaining hygienic surroundings and a clean environment. At the same time, it has also reiterated the significance of following a healthy lifestyle and a nourishing diet. Along with these important aspects of sanitization and immunity, the pandemic has also increased the level of awareness regarding the need to have a definite financial protection strategy.
What is Financial Protection?
Financial protection is a concept which includes providing individuals with a cushion or a buffer of finances so that people, in times of medical emergencies, don’t have to incur out-of-the-pocket expenditure which may threaten their financial stability. Medical emergencies, especially the ones dealing with chronic ailments, generally require the patients’ families to spend a lot of money to get access to medical treatment. This is true in almost all countries irrespective of the per capita income of the citizens or the standard of living of the general populace in that country. In recent years, the idea of Universal Health Coverage (UHC) has come to the fore. Universal Health Coverage is basically an idea wherein all individuals and communities can get the necessary medical facilities without incurring any significant expenses or facing any financial hardships. Thus, it is evident that the concept of financial protection is indispensable to make Universal Health Coverage a reality.
In order to assess whether a person is financial protected and secure, financial protection should be made a quantifiable entity. To make this possible, experts around the world have devised two primary ways in which financial protection can be measured. One way to measure it is to assess the amount of catastrophic health expenditure i.e., to measure the extent of population that has a large share of household expenditure being spent on healthcare services. Another yardstick to measure financial security is calculating the proportion of population that has slipped below the poverty line due to spending on healthcare services. Both these ways have been successful in creating a pool of people who need to have certain kind of financial protection. Today, financial protection strategies have become quite popular and several key players of the global financial protection market are coming up with different types of these plans to suit the need of the general masses.
Types of Financial Protection Plans That Are Crucial in Today’s World
The economic systems that are prevalent in today’s world need some tweaking in order to realize and truly implement the policy of Universal Health Coverage. For that to happen, certain types of financial protection plans have become very important. Some of them are discussed below:
- Income Protection Insurance Policies
Income protection insurance policies are insurance covers that regularly pay benefits to the insurance policyholders who are unable to work due to a chronic ailment or accident. This type of insurance policy is quite popular in countries like Australia, South Africa, United Kingdom, New Zealand, etc. United States, too, has the same insurance policy, but with a different name called as Disability Income Insurance.
- Critical Illness Cover
Critical illness covers or critical illness insurance policies offer benefits to the policyholder in the form of lumpsum cash payments if the policyholder is diagnosed with a critical disease. However, the critical disease should be mentioned in the list of diseases covered by the insurance company. Though lumpsum cash payment to the policyholder is the norm, some insurance companies also offer to pay the healthcare service providers directly. Some critical insurance policies also cover the fees of specialist doctors that have been a part of the diagnosis team.
- Life Insurance Policies
Life insurance policies, in the simplest terms, are contracts between the insurance policy company and insurance policy holders, wherein the company has to pay the predefined sum of money upon the death of the policyholder. Thus, life insurance policies provide financial protection to the family of the deceased insurance policyholder. However, certain categories are excluded in life insurance policies such as suicide, war, riots, etc.
The Bottom Line
As economies of scale become more and more complex, the spending patterns of people in general is bound to become dynamic. As a result, a financial protection plan for something to fall back on, in the case of a medical emergency, has become extremely vital. At the same time, the incidence of diseases that were previously unknown have further increased the need to opt for such financial security plans. The companies involved in this industry have to diversify their portfolios so as to cater to the specific needs of the people, so that the society, in general, has more options to choose from.
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