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Should you buy multi-year health insurance?

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. While such policies have many advantages, one must also know that these have some limitations as well.

Advantages: The premium for a multi-year health insurance policy remains unchanged for the entire period of the policy. This is particularly helpful since insurers review 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.

Naval Goel, Founder and CEO of PolicyX.com, said, “In recent times, many health insurers have increased their policy premium. Those who purchase a multi-year policy will not have to pay the revised rates for the next couple of years at least. Choosing a multi-year policy and paying the premium for a maximum of three years helps you lock in the premium amount.”

Besides, you may also get a discount on the premium when buying a multi-year policy. Pooja Yadav, chief product officer, Edelweiss General Insurance, said, “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.”

Goel explains this with a suitable example: “Take for instance the case of a 30-year-old man living in Delhi who wants to buy a health cover of 5 lakhs If he buys an annual policy, he will have to pay a premium of 8,066 and this is bound to rise every year. However, if he buys a three-year health policy, he will have to pay 21,778 in one go, helping him save around 11% on the premium. “

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. Anup Bansal, chief investment officer of Scripbox, said, “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.

Disadvantages: “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,” said Yadav.

Moreover, 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.

Also, porting will not help if the insurer brings down the premium rates over the next couple of years.

Who should buy?

Opting for a multi-year policy is viable as it offers the relaxation of staying secured for a specified number of years without worrying about annual renewals.

Rakesh Goyal, director, Probus Insurance broker, said that multi-year policies are ideal for policyholders seeking to avoid the hassle of yearly premium payments and the risk of missing the renewal date. 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. “Suppose you have a medical emergency during this time; you would be unable to make any claim and have to pay from your savings. Hence, such a policy protects you and your family against any medical emergency in the near future at the same premium amount,” said Goyal.

On the other hand, you must also understand that as your age advances, your insurance premium also increases. So, in such a case, a multi-year policy can be beneficial here since the premium remains the same throughout the policy period irrespective of the age. Bansal said, “If you were to buy a multi-year health policy, you can avoid higher premium revisions till the coverage ends.” The policy can be renewed again at the revised prices after its term expires.

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