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Published in Livemint.

More and more first-time buyers in the younger age brackets are opting for the monthly premium option when going for health insurance policies, the recent buying pattern on Policybazaar.com, an online marketplace for insurance, shows.

The monthly premium option was introduced by the Insurance Regulatory and Development Authority of India (Irdai) in April to provide relief from steep one-time premium payouts after covid-19 struck. The regulator asked all health insurers to introduce the instalment facility immediately either on a permanent basis or as a temporary relief for a period of 12 months till 31 March 2021. The idea was first floated by Irdai in September 2019, when it asked insurers to file revamped policies, with the instalment option, from 1 October 2020.

Policyholders now have the option of paying premiums in monthly, quarterly or half-yearly instalments. However, only a few insurers are offering this facility as of now. Among the ones that are, most are sticking to the monthly option. “Instalment premium option is a good mechanism to help increase penetration of health insurance and encourage more people to get themselves insured, especially where affordability is a big challenge,” said Prasun Sikdar, managing director and chief executive officer of ManipalCigna Health Insurance Co. Ltd.

As per the analysis done by Policybazaar.com, around 40% of individuals in the age group of 25-30 years bought health insurance through the monthly payment option against 30% for the annual payment mode from September to November. “Individuals in the top cities have much better adoption rate compared with people in tier-II or tier-III cities. It is an expected trend that younger people and those living in tier-I cities would be using this option, as they are most exposed to EMIs and personal loans,” said Amit Chhabra, health, business head, Policybazaar.com.

The instalment option has given a boost to mediclaim policies this year, he added.

However, the instalment facility has certain fallouts. We tell you what these are and why all insurers are not offering it as of now.

Pricing: While the benefits are identical in the instalment option to the yearly payment mode, the pricing can vary from company to company.

According to Abhishek Bondia, managing director and principal officer, SecureNow.in, an insurance broker, the premiums under the instalment option can be marginally higher to account for the time value of money, which indicates that the value of money goes down over time.

Risk of lapsation and lack of coverage: Monthly option is convenient if you are in a cash crunch but remember to put a standing instruction in place for automatic periodic deductions. According to the Irdai circular in 2019, missing the instalment may result in lapsation of policy. In the case of monthly premium option, the grace period is around seven to 15 days against one month for the annual option, said Chhabra.

Moreover, late payment may mean absence of coverage for that period. During the grace period, the coverage of the policy will not be available from the due date of payment till the date of receipt of premium by the company, according to the Irdai circular.

The insurers also have the option to cancel the policy, in case the instalment is not received within the grace period.

Claims process: The instalment option may also impact the claims process. In the event of a claim, an insurer may deduct all the subsequent premium instalments from the claim amount, Irdai’s 2019 circular had said. For example, suppose the policy premium is 12,000, and you are paying 1,000 a month. If the claim is of 50,000 and you have paid just two EMIs, and 10,000 is pending. Then, the remaining premium amount of 10,000 will get deducted, and you will get a claim payment of only 40,000.

Still in the works

According to experts, not all companies have started rolling out this facility as they are still working on the technology part. Some of the large insurance companies that have rolled out this option are Star Health & Allied Insurance Co. Ltd, Care Health Insurance Ltd, HDFC ERGO General Insurance Co. and Cholamandalam MS General Insurance Co. Ltd.

“Monthly payment has been associated with lower persistency. So, insurers prefer annual payment modes to ensure high customer retention. Apart from the opportunity cost of investment income, insurer’s operating expenditure may go up, including changes in IT infrastructure, operational processes to track payments and accommodate change requests,” said Bondia.

Health insurance has increasingly become a necessity, but it’s becoming unaffordable for some, given the rising premiums and the prevailing cash crunch situation. The instalment options thus works for a lot of people. The added advantage is that the policy benefits are the same. “Generally, for policies with the instalment premium payment option, the benefits do not vary. Only the premium frequency can be selected. Thus, it is an affordable option,” said Sikdar.

However, keep in mind the fallouts of the instalment option. Moreover, it is not available for renewal of policies as of now.