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You might not get the option to pay health premiums in instalments

Though Irdai clearly stated that the installments model must not result in a spike in premiums, some insurers believe there could be a small increase. Photo: iStockPremium
Though Irdai clearly stated that the installments model must not result in a spike in premiums, some insurers believe there could be a small increase. Photo: iStock

  • Irdai has asked insurance companies to allow policyholders to pay their annual health insurance premiums on a monthly, quarterly or half-yearly basis, but not all insurance companies have provisioned for this facility and the few that have might not offer the option to all policyholders

The extended lockdown in the wake of the covid-19 outbreak has impacted businesses across sectors, and one major fallout of this has been employees dealing with pay cuts and job loss. In a bid to offer some relief to policyholders dealing with liquidity crunch, on April 21, the Insurance Regulatory and Development and Authority of India (Irdai) asked all general and standalone health insurers to give policyholders the option to pay health insurance premiums in instalments.

In September last year, the regulator had asked insurers to offer this option, but it wasn’t mandatory. “We were just asked to give this option to policyholders but it was left to the insurer’s discretion. This time too, it’s not mandatory for us to extend the option to pay premiums in instalments. If insurers have the systems in place they can do it," said Rashmi Nandargi, head, retail health, PA and travel underwriting, Bajaj Allianz General Insurance Co. Ltd.

WHAT IT MEANS

In its circular, Irdai asked insurance companies to allow policyholders to pay their annual health insurance premiums on a monthly, quarterly or half-yearly basis, but not all insurance companies have provisioned for this facility and the few that have might not offer the option to all policyholders. “The installment option was available even earlier in the product filing regulations of Irdai and we’d applied for it for some of our products, but whether to extend it to a policyholder or not is decided by the underwriters," said Milind V Kolhe, chief underwriting and reinsurance officer, Bharti AXA General Insurance Co Ltd.

Though Irdai clearly stated that the installments model must not result in a spike in premiums, some insurers believe there could be a small increase. “It’s the insurers’ choice whether they want to offer options for all frequencies or stick to just monthly or quarterly payments. For any installment option, there would be a modal factor applicable, which means there could be some increase in premium. The fee could vary from insurer to insurer," said Nandargi. Modal factor is a fee that insurers charge when premiums are paid in installments. It’s a percentage of the annual premium.

However, a few other insurers said there may not be any increase in premiums even if they are paid in instalments. “The premium will not change. The annual premium will be divided by 12 if you opt for monthly instalments; by four if you opt for quarterly instalments; and by two if you go for half-yearly instalments. The regulator is silent on any extra fees that may be applicable," said Kolhe.

IMPACT ON CLAIMS

What happens if you opt for the monthly instalments option and make a claim after paying only a couple of instalments? Will you be eligible for the full cover? Experts have two different views on this. Indraneel Chatterjee, co-founder and principal officer, RenewBuy.com, said the Irdai circular does not offer enough clarity on this front. “I think this is how it’ll work: say the annual premium is 12,000, then the monthly premium will be 1,000. If you pay two monthly instalments and make a claim of 50,000 in the third month, the entire claim amount will be paid and the remaining instalment amount for 10 months, which is 10,000, will be deducted from the claim amount. Therefore, the net claim payable would be 40,000," he said.

Kolhe, however, said that claim settlement will depend on whether the premium is paid on time. If you pick the quarterly option and pay the premium for the first quarter, then make a claim a few days into the second quarter, you’ll be eligible for the full sum insured only if you’ve paid the second installment of the premiums on time. “Say your premium is 10,000 for a 5 lakh cover and you’ve paid 2,500 in the first quarter and you make a claim in the same quarter, you will be eligible for the full cover. But if the claim is in the second quarter and you've not paid the premium on time, you may not be eligible for the complete sum insured," he said.

This does increase the risk for the insurance companies and this is why the option to pay premiums in installments is offered only on a case-by-case basis. If applicable, insurance companies will extend this option to policyholders at the time of renewal of the policy.

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