Insurers have started promoting monthly and quarterly premium payment modes in an effort to make health plans affordable for all. Besides, they are also offering zero cost EMI (equated monthly instalment) options now. The idea seems to be appealing for many. Data obtained from insurance distributor Policybazaar shows that 33% of young salaried individuals (aged 26 to 35) prefer the monthly payment mode when purchasing such a policy for the first time. Interestingly, the trend is more pronounced in tier-III regions, where 44% of individuals have opted for monthly payments, compared to 31% in tier-2 cities and only 23% in metros.
While monthly and quarterly payment options help people in managing their cash flows, financial advisers have warned of the risks involved. Swapnil Satish S., senior insurance advisor at Ditto Insurance, relates the experience of one of his clients, who opted for the monthly option for his parents’ insurance policy. The premium amount was to be auto debited from his debit card every month. “Due to some strictures issued by the bank regulator on card payments, the auto-debit failed. My client realized this 25 days after the due date. The policy, however, could not be revived and he had to buy a new policy. In the process, his parents lost all continuity benefits available on the earlier policy,” he says.
To be sure, insurance companies offer a grace period of 15 days from the payment due date during which you can make the payment. Once the grace period is over, your policy will lapse and you will have to buy a fresh policy altogether. “In case you get hospitalized during the grace period, the insurance company will not be liable to accept your claim,” says Siddharth Singhal, business head-health insurance, Policybazaar.com.
Also be aware that you might end up paying higher on an aggregate basis, “The overall premium outgo in the monthly or quarterly option could be 3-4% higher than the annual option, but some insurance companies do not charge extra,” says Singhal.
Consider a scenario where you have paid four monthly premiums. In case you are hospitalized in the fifth month, the insurer will deduct the premiums for the remaining 8 months from the approved claims amount before settling the claim. What if the claims amount is lower than accumulated premiums so far? You will still have to pay residual premiums before the claim is settled.
“One of my clients had outstanding premiums that was greater than the claim amount. The insurer denied the claim for this reason. They had to pay the balance amount from their pockets,” said Nisha Sanghavi, founder of Promore Fintech. “Most of my clients come and say they want to buy the monthly plan but aren’t sure of the caveats”
If you are indeed going for the monthly option, here are two things to keep in mind. “Link your payments with your main bank account and not credit or debit cards because in case your card expires, you may miss the payment. Secondly, ensure that your own phone number is registered with the insurance company because you will miss reminders from the insurance company,” says Mahavir Chopra, founder, Beshak.org.
Monthly and quarterly options do offer convenience but come with hassles. Opt for it only if you can actively ensure timely payments. Insurance experts said that delay in the monthly payments also affect one’s credit score. Another thing to watch out is the processing fee levied on each EMI transaction.
