HYDERABAD: Your annual health insurance plan is up for renewal, but you cringe looking at the one-time outgo as it dents your monthly disposable income. You put it off for the next month, and then one more, and before you realize it, you run the risk of paying a penalty. Discouraged, you may even discontinue the policy. Sounds familiar?
Most of us would have bought a health plan in earnest based on expert advise, but what’s little said or thought about is the source of funds for renewal payments. A few do-it-yourself financial planners, who have taken an ingenious route, say fixed deposits — you heard it right — can help you meet premium payments and even inculcate a renewal payment discipline.
Assuming you take a family cover of Rs 5 lakh, which comes with an annual premium of Rs 25,000-30,000, create a fixed deposit of Rs 4 lakh, which earns an interest income of Rs 28,000 per annum (assuming a 7 per cent interest rate). But, make sure to deposit for 5 years or more to take the higher interest rate benefit as opposed to a one- or two-year deposit.
“By keeping Rs 4 lakh fixed deposit, you and your family can get a life-long medical cover of Rs 5 lakh. The interest from the deposit takes care of the premium requirement with an added bonus of tax benefit,” says Venkatesh Jayaraman, an individual investor based in Bengaluru adding, “Channelize this interest amount towards annual premium.”
A simple health plan for a family of four (two adults and two children) worth Rs 3 lakh costs even less (below Rs 10,000) depending on age and medical history, the renewal premiums can be taken care of by a fixed deposit as low as Rs 1.5 lakh. But, what do you do if annual premium increases, but not interest income on the deposit? The increase in premium is generally negligible unless of course, you increase the total cover. In the latter case, you may have to accordingly increase the deposit amount. Missing renewal payments and eventual policy discontinuity will be a death blow as the policyholder will have lost out on the waiting period limits.
Meanwhile, unlike life insurance policies, which offer the flexibility of a monthly, quarterly, half-yearly and annual payment option, it’s easier said than done for health or motor insurance, which are prone to frequent and high claims settlements. Though a few players like Future Generali toyed with the idea in 2016, such plans were not without riders. For one, the premium charged was higher than the standard rates. Moreover, policyholders will have to go through the full 12 months when instalments are paid to stake claim to the insurance money, unlike regular policies where annual premiums are paid upfront.
Nevertheless, sector watchdog IRDAI is considering allowing an equated monthly instalment option for health premiums, as it makes the products affordable, and allows policyholders to even seek a higher cover as premiums, when sliced into EMIs, are easier to bear. But, it’s important to note that instalments, irrespective of the product, always make the actual cost of the product higher. Another option currently available to policyholders is to pay premium through credit cards and convert it into EMIs, which of course comes with an added interest component.
How does this system work?
Assuming you take a family health cover of H5 lakh, which comes with an annual premium of H25,000-30,000, create a fixed deposit of H4 lakh, which earns an interest income of H28,000 per annum (assuming a 7 per cent interest rate). But, make sure to deposit for 5 years or more to take a higher interest rate benefit.