Health insurance has always been the neglected child in most households. The optimism bias, especially among Indians, is usually high and many believe nothing bad will ever happen to them or their loved ones. However, things changed when Covid-19 came knocking on our doors two years back. The pandemic shattered our bias as we saw many of our close friends and relatives getting hospitalized or even losing the battle to Covid.
While the pandemic got many acquainted to how expensive hospitalizations can be and how it can severally dent one’s finances, it also made people aware of the importance of health insurance. Though the acceptance of health insurance still remains fairly low in India, the awareness has surely risen in the last two years. No matter what stage of life you are in, having an adequate health cover is important.
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 merit in buying a multi-year plan? Under a multi-year plan, you pay the premium for two or three years in one go. Now if you are someone who looks at saving some bucks at every instance, then multi-year health insurance might be for you. While the premium outgo is higher in such cases, there might be merit in considering a multi-year health insurance plan. Here’s why:
Get discounted premiums: Insurers often give discounts to customers for paying multi-year premiums at once. The discounts may typically range anywhere between 7% and 15% and could result in additional savings for the customers. These discounted premiums are usually not available for customers buying a single-year health plan.
The Lock-in Advantage: You might be aware that the premium amount that you pay rises every year as you age. The premium, for example, for a 40-year-old could be 30-40% higher compared to a 30-year-old individual. Choosing to pay multi-year premiums at once lets you lock in the premium amount for the next 2-3 years. This in turn will help you escape the expected increase in premiums should the insurer revise them.
Escaping Premium Revisions: The healthcare costs are only rising in India and medical inflation is a reality one cannot run away from. As medical expenses rise, insurers also revise their premium rates from time to time. By choosing to pay multi-year premiums, one gets protected from any subsequent premium revisions that companies may implement in the next few years.
Tax Advantage: Under Section 80D of the Income Tax Act, one can avail tax benefits of up to Rs 25,000 on the health insurance premiums paid for self, spouse, and children. However, under a multi-year health insurance plan, the one-time premium paid by you can be proportionately split each year to avail the tax benefit for 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 a child, you can avail a tax exemption of Rs 12,000 each year.
A health insurance plan is a long-term product; so, if you don’t want the hassle of renewing your policy each year and can afford the higher one-time premium outgo, opting for a multi-year health insurance plan could work to your advantage. Multi-year or not, a health insurance plan is your friend for a lifetime. So, make sure you don’t ignore it and make it your topmost priority.
(By Nikhil Kamdar, Appointed Actuary at Digit Insurance)
Disclaimer: Views expressed here are personal.