One way is to buy a multi-year insurance policy in which you have to pay the entire premium at one go. The overall outgo will be less than what you would have paid yearly for the same period. For example, if you pay three premiums at one go, the total cost will be less than paying annual premiums every year for three years.
A couple of insurers have started offering five-year policies with a one-time premium payment. For example, a 61-year-old would have to pay an annual premium of ₹40,356 for ICICI Lombard Elevate. If she wants, she can choose a five-year policy which will cost ₹1,85,621.
While this works out to a discount of nearly 8%, it’s important to note that the annual premium may increase in the following years. A policyholder with a five-year insurance policy will be insulated from any such hikes, increasing the effective discount.
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Aditya Shah, founder of Hercules Insurance Advisors, said, “If a company hikes the premium by 10-15% due to rising claims or medical inflation, a long-term policy will protect you from it. The overall discount from multi-year policies can go up to 17-18%. It is nearly 7.5% for two-year policies, 15% for three-year policies and 17-18% for five-year policies.”
As for your tax deduction under Section 80-D of the Income Tax Act, you can split the payment across multiple years.
What can go wrong
Imagine you filed a claim and did not like your insurer’s settlement process. You may want to port your policy to another insurer. While porting is not prohibited, you won’t get a refund of the premium. However, if you terminate your policy, it is possible to get the refund of the balance premium, on the condition that no claim has been filed so far.
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Shah said, “As per the insurance regulator IRDAI, if you have made a claim in a multi-year policy and want to cancel it, insurers will not be liable to refund your premium for the remaining years. If you have not made any claim, you can terminate your policy and your insurer will refund the balance premium after deducting the amount for the days during which the policy remained active.”
He added, “Porting your policy to another insurer and getting a refund of the premium is not possible whether you have made a claim or not. You can port it if the new insurer agrees, but be ready to forfeit the amount that you have already paid to the existing insurer,” he added.
Financing your premium
Paying the premium for a long-term policy at one go may cause cash-flow challenges. In such a situation, you could explore financing options as almost all insurers offer to convert your premiums into monthly instalments. The insurance company receives the premium upfront and the policyholder pays EMIs to the financing company.
Hanut Mehta, co-founder and CEO of BimaPay Finsure, a part of Hindon Mercantile Group, said, “Insurers and financial institutions now provide structured premium financing options that allow policyholders to spread out their payments into manageable EMIs. This ensures that individuals can secure multi-year discounts without the burden of a large upfront payment.”
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However, premium financing does reduce your discount to some extent due to the interest cost. Let’s understand how it works with an example.
Suppose the annual premium for a 61-year-old’s health plan is ₹40,356. The cost for three years comes in at ₹1.21 lakh. However, the premium cost is unlikely to remain the same for the entire duration. Assuming it grows 5% every year, the total premium outgo for three years will be ₹1.33 lakh. By comparison, your total premium will be only ₹1.10 lakh if you choose a one-time payment. If you do not have this much cash, you can look at financing your premium.
“The policyholder will have to pay 15% of the premium cost ( ₹1.10 lakh*15%=16,578) as a down payment. The 12-month EMI will come in at ₹8,613 at an interest rate of 17-18% on a reducing basis on the loan amount (premium – down payment),” said Mehta.
The total cost to customer, including interest, will be ₹1.20 lakh, saving her nearly ₹13,000 ( ₹1.33 lakh – ₹1.20 lakh) if we calculate the difference from inflated annual premiums spread over three years.
