NPS Swasthya: Should retirement savings be bundled with health cover?

Investors should compare the premiums under NPS Swasthya with those of the standalone super top-ups offered by insurance companies

The Pension Fund Regulatory and Development Authority (PFRDA) launched National Pension System (NPS) Swasthya on October 1, 2026, which is celebrated as NPS Diwas. So far, one pension fund manager, Axis Pension Fund, has launched this scheme. Subscribers must weigh the convenience provided by a bundled scheme against the flexibility that comes from having two separate schemes.

 

How it works

 

NPS Swasthya pairs a dedicated investment corpus with a super top-up health insurance policy. “The scheme aims to help individuals prepare for health contingencies without disrupting long-term retirement savings,” says Sumit Shukla, managing director and chief executive officer (MD & CEO), Axis Pension Fund.

 

The family floater can cover the subscriber’s spouse and children, with sums insured ranging from ₹1 lakh to ₹30 lakh. Subscribers must pay the first-year premium upfront when opening the account. From the second year, they can fund renewal premiums from the NPS Swasthya balance.

 

Short waiting period

 

NPS Swasthya contributions will be invested according to the pattern prescribed for the central government scheme, which allows restricted equity exposure. Investors have fewer investment options than under the All Citizen Model, which allows more aggressive investors greater exposure to equities. “The restriction puts investors who want higher equity exposure at a disadvantage,” says Vishal Dhawan, CEO and founder, Plan Ahead Wealth Advisors.

 

The family floater excludes parents. “Excluding older parents makes the cover simpler and more affordable,” says Vishwajeet Goel, head, Pensionbazaar.

 

The scheme has a 12-month waiting period for pre-existing diseases. “The waiting period is shorter than what many retail health policies offer,” says Arun Ramamurthy, co-founder, Staywell.Health.

 

The annual aggregate deductible (the amount the insured or their base health cover must pay) is ₹10,000 for a ₹1 lakh cover, ₹50,000 for a ₹5 lakh cover, ₹1 lakh for a ₹10 lakh cover and 

 

₹3 lakh for a ₹30 lakh cover. Multiple eligible claims can accumulate towards this deductible. A deductible is meant to reduce the premium but increases the patient’s out-of-pocket cost.

 

Access to money for healthcare

 

Subscribers can withdraw up to 25 per cent of their own contributions (not investment gains) for eligible outpatient and inpatient expenses. No minimum waiting period or limit on the number of withdrawals has been prescribed. “Healthcare withdrawals provide emergency liquidity without requiring exit from the scheme,” says Goel.

 

Retirement-only plans tend to have stricter rules for partial withdrawals. This provision makes NPS Swasthya more flexible.

 

These withdrawals, however, come at a cost. “They deplete the retirement corpus, as has also been seen in the case of the Employees’ Provident Fund (EPF),” says Dhawan.

 

Premature exit permitted

 

Subscribers can opt for a premature exit if a single eligible inpatient expense exceeds the partial withdrawal limit. The account balance first meets the eligible expense. Any remaining amount then moves to a regular All Citizen Model NPS account, and the NPS Swasthya account closes.

 

“The advantage of this provision is that funding beyond the normal partial-withdrawal limit is available for meeting a very large medical expense,” 

 

says Goel. What needs to be clarified, according to him, is whether subscribers can open a new Swasthya account after closure.

 

Benefits of a combo product

 

Rising healthcare costs are among the biggest financial risks during retirement. While people plan for normal 

 

retirement expenses, they do not provision adequately for medical expenses. “This scheme supports longevity and long-term wealth creation alongside healthcare preparedness,” says Shukla.

 

One benefit of a combo product, according to Dhawan, is that the insurance cover can be kept alive even when a person is unemployed and finds it difficult to pay the premium, provided sufficient money is available in the NPS account.

 

Less flexibility

 

Combining products, however, reduces flexibility, as has been witnessed in the case of products that combine investment and life insurance.

 

Insurance needs evolve. “Separate products allow investors to choose the best product in each category. They also allow greater customisation and enhancement of the cover when required,” says Dhawan.

 

Retail health policies offer lifelong renewability. NPS Swasthya currently permits renewal only up to age 85. “Health insurance becomes even more crucial at that age,” says Ramamurthy.

 

A super top-up is not a complete health insurance solution. It must be complemented by a base cover.

 

Who should consider it

 

The scheme may suit people who want a simple, single-product solution. NPS subscribers with a base health cover who want additional protection against large medical expenses could consider it. The investment component may suit investors comfortable with the conservative central government investment model.

 

Younger investors whose base plan meets their needs and people who already have a large base cover (say, of ₹1 crore), will not need the scheme. Many buyers may want a super top-up of more than ₹30 lakh. “Investors who want a more aggressive investment approach may not find this solution suitable,” says Dhawan.

 

Compare costs and terms

 

Those who decide to go for NPS Swasthya should compare premiums, sums insured, exclusions and waiting periods of the NPS Swasthya super top-up with the standalone super top-ups offered by insurers. “The bundled insurance’s specific terms will become clearer as more plans are launched, allowing subscribers to assess which option suits them better,” says Goel.

 

The premiums will be determined by the insurers each pension fund manager ties up with. Experts say it is not yet possible to conclude whether the super top-up offered by the NPS Swasthya scheme will be cheaper than standalone super top-ups, as only one fund manager has launched its product so far. “Premiums appear competitive,” says Ramamurthy. Premiums will vary by the subscriber age cohort, insurer’s underwriting norms, cover amount and deductible. Ramamurthy emphasises the need for a more detailed apples-to-apples comparison.

 

Dos and don’ts  

• Do not rely solely on the health insurance cover within NPS Swasthya
• Buy a base health insurance cover adequate to meet expenses up to the deductible
• Alternatively, use the health insurance provided by the employer to meet this requirement 
• As far as possible, avoid depleting the retirement corpus with partial withdrawals