Most individuals are used to renewing their health insurance plan, whether it is an individual or family floater plan, on an annual basis. If, for any reason, the premium is not paid by the renewal date, the cover will lapse. During such a period, if the individual is hospitalised, the insurance company will reject the claim. To overcome the annual practice of renewing the health insurance plan every year, these days, insurance companies offer multi-year health insurance plans. In this article, we will understand what is a multi-year health insurance plan, its benefits, and whether you should go for it.
What is a multi-year health insurance plan?
A multi-year health insurance plan allows an individual to pay the policy premium for multiple years at one go. Usually, the insurance company offers an option to pay the premium for 2 to 5 years. These plans are also known as multi-pay plans. For example, the insurance company may provide a 2-pay (2 years premium at one time), 5-pay (5 years premium at one time), etc. option.
By opting to pay the health insurance plan premium for multiple years at one go, the insured is relieved from the annual practice of renewing the policy every year. The insured does not need to keep track of the annual renewal date. There is no risk of forgetting to pay the annual premium by the renewal date, which results in the policy lapsing.
Benefits of multi-year health insurance plans
On the financial front, multi-year health insurance plans provide the dual benefits of an upfront discount on the premium paid and protection from future premium increases. Apart from these, multi-year health insurance plans provide several other benefits. Let us discuss each of these benefits.
1. Upfront discount on premium: When an individual opts for a multi-year plan, the insurance company benefits from advance premium collection for multiple years. With an advance premium payment, the company gets an assurance from the policyholder that they will continue to be the insurance company’s customer and utilise their services.
To incentivise the customer to opt for a multi-year plan, the insurance company usually offers an upfront discount on the premium amount. The discount usually ranges between 5%-15%. Usually, the more the number of years for which the customer agrees to pay the premium in advance, the higher the discount. For example, for a two-year plan, the company may offer a 5% discount, and for a five-year plan, the company may offer a 15% discount.
2. Protection from future increases in premiums: According to various reports, annual medical inflation in India has been in the range of 10-15% in the last few years. Based on the claim experience, high annual medical inflation rate and other factors, insurance companies are compelled to hike premiums on health insurance plans annually or every couple of years.
When an individual pays for a health insurance plan for multiple years in one lump sum, they shield themselves against insurance premium hikes during those years. For example, suppose an individual has paid the health insurance premium for 5 years in one go. In this case, the individual has shielded themselves from any premium hikes in those 5 years.
3. No annual hassles: With a multi-year plan, you can get relief from the annual hassle of remembering the renewal date and paying the premium every year. You can simply pay the premium for multiple years at one go and forget about it for that many years. Thus, multi-year plans provide the much-needed convenience.
4. Uninterrupted coverage for multiple years: A multi-year policy provides uninterrupted health insurance coverage without any breakage in between. In an annual policy, if you forget to pay the premium by the renewal date for any reason, the policy will lapse. During this period, if you get hospitalised and file a claim, the insurance company will reject it.
If yours is a family floater plan, all the covered family members will enjoy uninterrupted health insurance coverage with a multi-year plan.
5. Income tax benefits can be claimed annually: Under the Old Tax Regime, as per Section 80D of the Income Tax Act, an individual can claim a deduction from their taxable income for health insurance premium paid for self and family members. An individual can claim a separate deduction for health insurance premium paid for parents.
Suppose you have taken a multi-year plan and paid the premium for three years at once. In this case, under Section 80D, you can claim a proportionate deduction every financial year for three financial years.
Under Section 80D, there is a maximum limit up to which deduction from taxable income can be claimed for the premium paid for a health insurance plan. In our above example, the cumulative premium for three years may exceed the maximum limit allowed in a financial year. However, if you break up the premium over three years, and claim a proportionate deduction every financial year, you can claim the entire amount every year for those three years.
So, with a multi-year health insurance plan, you pay the entire premium for multiple years at one go. However, the proportionate claim spread over multiple years allows you to maximise the Income Tax benefits.
6. EMI facility for premium payment: The annual health insurance premium depends on various factors, including the number of individuals covered, the age of the eldest member, the plan features and benefits availed, the coverage amount, riders, etc. Taking all the above factors into account, and multiplying the annual premium by multiple years, the premium outgo can be a substantial amount.
To make it easy and convenient for the policyholder, many insurance companies allow the EMI facility in partnership with banks/NBFCs. It allows the policyholder to pay the premium in easy EMIs, spread across a chosen specified tenure, without stretching the monthly budget. When opting for the EMI facility, check the processing fee and interest rate charged by the bank/NBFC.
Should you opt for a multi-year health plan?
A multi-year health plan provides the dual financial benefits of an upfront discount and protection from future premium increases. It also provides other benefits, such as uninterrupted coverage and freedom from the hassle of annual renewal.
The government has played its role by allowing policyholders to claim a proportionate deduction every year, spread across multiple years under Section 80D. Insurance companies make it easy for the policyholder by providing an EMI facility in partnership with banks/NBFCs. Considering all the above advantages, a policyholder may opt for a multi-year plan and reap the benefits.
