Does buying multi-year health insurance policy make sense?
A multi-year health insurance policy is a long-term alternative to an annual health policy. A multi-year policy, as the name suggests, will provide coverage for an extended duration of two or more years.
It typically allows policyholders to pay the premium for the next two or three years in one go at the time of buying the policy, thereby relieving them of the hassle of renewing it every year.
So what are the advantages of such a type of policy?
No change in premium: The premium for a multi-year health insurance policy remains unchanged for the entire period of the policy. This is particularly helpful since insurers revise their premium rates upwards on a regular basis. Thus, a policyholder is protected from any subsequent premium revisions in the policy premium made by an insurer in the next couple of years.
Discount on premiums: Insurers often give discounts to customers for buying multi-year premiums. The discounts may typically range between 7% and 15% and result in additional savings for the buyers.
Tax-haven: Such policies also offer tax-saving benefits wherein you can avail of the one-time premium proportionally every year (out of the two or three years) to get the benefits. Under Section 80D of the Income Tax Act, one can avail tax benefits of up to ₹25,000 on the health insurance premiums paid for self, spouse, and children. However, under a multi-year health policy, the one-time premium you pay can be proportionately split each year to avail the tax benefit for your health policy." For instance, if you have paid a premium of ₹60,000 for a multi-year policy of three years, you can get a tax exemption of ₹20,000 annually till the policy lapses. Hence, it offers a dual benefit: tax deduction (which would ideally not be the case if the total premium exceeds the prescribed limit) as well as a discount in the same year.
However, knowing the limitations is crucial as well.
Porting issue: It is possible that you could end up with a loss if you were to buy a multi-year health policy and then decide to cancel or port it after one year. E.g: all health policies come with a waiting period, and the limitations and benefits differ depending on the insurer and the terms and conditions of the policy. Some policies may cover certain diseases after two years, while others may cover the same illness after four years. In such a case, switching to another policy can become cumbersome.
Premiums can decrease: Just like insurance companies increased premiums in 2020, they can be decreased in subsequent years depending on the overall market dynamics leading to a loss.
So who should buy it?
Folks nearing the age of 30-35 post which, the premiums start sky-rocketing can consider buying a multi-year policy. Additionally, those policyholders which seek to avoid the hassle of yearly premium payments and the risk of missing the renewal date can ensure getting one. Policyholders usually miss the renewal deadline and lose any benefits when they do not renew their policy on time or even skip the grace period.
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