Insurance plan

Four advantages of opting for a multi-year mutual

Health insurance has always been the neglected child in most households. The optimism bias, especially among Indians, is generally high and many believe that nothing bad will ever happen to them or their loved ones. However, things changed when Covid-19 came knocking on our doors two years ago. The pandemic has shattered our bias as we have seen many of our close friends and relatives being hospitalized or even losing the battle against Covid.

While the pandemic has made many people familiar with the high cost of hospitalizations and how they can individually affect their finances, it has also made people aware of the importance of health insurance. Although the acceptance of health insurance is still quite low in India, the awareness has surely increased over the past couple of years. No matter what stage of life you are in, it is important to have adequate health coverage.

Most Indians today buy a health insurance plan on an annual basis. Considering the fact that health insurance is a long-term product, is there any point in subscribing to a multi-year plan? Under a multi-year plan, you pay the premium for two or three years all at once. Now, if you’re someone looking to save money every time, multi-year health insurance might be right for you. Although the premium amount is higher in such cases, it might be wise to consider a multi-year health insurance plan. Here’s why:

Take advantage of discounted rewards: Insurers often give discounts to customers for paying multi-year premiums all at once. Discounts can typically range between 7% and 15% and can result in additional savings for customers. These reduced premiums are generally not available to customers purchasing a one-year health plan.

The advantage of locking: You may know that the amount of premium you pay increases each year as you get older. The premium, for example, for a 40-year-old could be 30-40% higher than for a 30-year-old. Choosing to pay multi-year premiums all at once allows you to lock in the premium amount for the next 2-3 years. This, in turn, will help you escape the expected increase in premiums if the insurer revises them.

Escaping Premium Revisions: Healthcare costs are only rising in India and medical inflation is a reality that cannot be escaped. As medical costs rise, insurers also revise their premium rates from time to time. By choosing to pay multi-year premiums, one is protected from any subsequent premium reviews that companies may implement over the next few years.

Tax benefit : Under Section 80D of the Income Tax Act, one can enjoy tax benefits of up to Rs 25,000 on health insurance premiums paid for self, spouse and children. However, under a multi-year health insurance plan, the single premium you pay may be prorated each year to benefit from the tax advantage of your health plan. For example, if you paid a premium of Rs 36,000 for a three-year plan that covers you, your spouse and one child, you can qualify for a tax exemption of Rs 12,000 each year.

A health insurance plan is a long-term product; so if you don’t want to have to renew your policy every year and can afford a higher single premium, opting for a multi-year health insurance plan might be to your advantage. Multi-year or not, a health insurance plan is your friend for life. So make sure you don’t ignore it and make it your top priority.

(By Nikhil Kamdar, appointed actuary at Digit Insurance)

Disclaimer: The opinions expressed here are personal.