How To Plan Your Health Insurance Premiums Well In Advance?

A 40 year-old man buying health insurance for his 35 year-old wife, and two young children has to spend Rs.20,000 annually to ensure a coverage of Rs.7.5 lakhs. Since most health insurance plans have lifetime renewability, he has to keep paying this premium amount, every year, for the foreseeable future.

Unlike term insurance or endowment plans, health insurance does not come with a fixed payment period; therefore, the burden of paying health insurance premium must be looked at as a lifetime commitment.

Therefore, keep your annual health insurance expense in mind when planning your annual budget, so that you do not have to depend on disposable income. If your annual insurance premium is Rs.20,000 and your due date is in August, that means you must have access to that amount in liquid form by the end of July. Suppose your Diwali bonus comes by October, or the Christmas bonus by December - will you have Rs.20,000 to spare in August?

If you keep aside Rs.4000 for 5 months, you will have Rs.20,000 ready by the time your premium payment is due. Timely planning will make sure that the money you had earmarked for a vacation or a wedding gift is not diverted for the sake of your health insurance.

Having an emergency fund is also a good idea, something most wage-earners already practice. This emergency fund should not be used for paying your premium on a daily basis - it should cover a variety of contingencies (the urgent repair of your car, for example).

Financial experts suggest you to keep up to a month’s necessary expenses in a savings account for immediate access. Three to six months of expense can be kept in a savings-cum-fixed account for bigger emergencies.

In case you do not have ready funds when your annual premium payment is due, withdraw from this source and replenish it once you are at ease financially. If all else fails, consider using your credit card to pay your health insurance premium.

Two basic things to keep in mind are:

• Don’t Buy More Insurance than You can Afford: If your annual income is Rs.3.5 lakhs, then a premium of Rs.20,000 will put too much strain on your budget in the long run.
• Keep a Close Watch on Premium Due Date: Assign a number of alerts, ideally at least two - one a month before your due date, and the other a week before. This will give you a month to get hold of enough funds, and if you are unable to do so you will still have a week to gather emergency funds

Failing to pay health insurance premium on time has a number of unique and unpleasant consequences -

1. Your policy will enter a grace period, if you fail to pay by the due date - if you pay within this timespan, the policy will continue with all the benefits you had accrued till date. However during this period of 15/30 days, you will not have coverage.
2. If premium payment is not made within the grace period, your policy will lapse. Your insurance provider may ask you to get a new policy, which means all diagnoses made within your coverage period can now be considered as pre-existing diseases.
3. You will miss out on tax deduction benefits under Section 80D of the Income Tax Act, as well as lifelong renewability benefits as per IRDA regulations. If a 65 year-old man fails to make the payment even during the grace period, after having paid premium regularly for 30 years, the insurance provider may refuse his proposal citing age and pre-existing diseases.

Payment through EMI is a feasible alternative for those who struggle with long-term financial planning. Monthly installments reduce the payment into manageable chunks that put less of a strain on your finances.

"It's very useful for a policyholder for whom say Rs.10,000 is a big pinching amount to pay at one go," said Yashish Dahiya, co-founder and CEO of PolicyBazaar.com.

Things to keep in mind about EMI payments for health insurance:

• This mode of payment is available only for policies exceeding a certain amount.
• The rates will be up to 5% higher, if your payment mode is per month instead of per year.
• If you make a claim in September, then premium for the last 3 months will be deducted from your claim amount.

Industry experts believe that EMI allows greater flexibility to insurance seekers in terms of higher insurance coverage. In many cases, people planning to buy individual policies can consider investing in a family floater policy as the investment is easily spread over a longer time period.

Over to You!

We’re sure now you understand how you can easily manage your health insurance premium payments, well in advance, without having to burn midnight oil. Now, it’s time to put the learning into practice. Go ahead! It’s never too late to being your health insurance payments back on track.