What are the Pros & Cons of Monthly EMIs in Health Insurance Plans

Introduction

Take a look at any reputed financial channels, websites, pages, and blog & you’ll see, read, and hear how they promote the purchase/investment of/in stocks, mutual funds, life and health insurance plans, and more.

After all, Gen Z, Gen Y, and millennials have all become financially aware and tech-savvy following the leaps of inflation across the decade and the recent 1st hand experience of the financial chasm beckoned by the pandemic outbreak.

However, among all of these financial channels, one has gained the upper hand considering its increased demand among the masses - health insurance policies. The alarming awareness regarding healthy living paved the way to a greener living condition, as well as, the crafting of a financial security blanket in case of medical emergencies that wouldn’t jeopardize one’s savings.

On the other hand, the financial contradiction comes with the fact that while one yearns to gain financial safety by availing of health insurance plans, the premiums aren’t exactly cheap, so to say. And what is even more inconvenient is paying off such a significant amount as premiums as a coagulated, one-time payment each year.

But how could the health insurance industry simplify the availing of such policies without creating a huge financial burden? The answer was simple - Equated Monthly Instalment or EMI. However, this mode of payment certainly brings in several questions - how do EMI in health insurance premium work, what are the pros and cons of such EMIs, and how can you choose a health insurance policy that offers EMI benefits?

Here’s the read that will be the final answer to all these questions

Why did the IRDAI introduce Health Insurance Premium EMIs?

If you take a look at our blogs on health insurance for senior citizens and health insurance for freelancers, you’ll understand the oxymoron of a situation that potential policyholders find themselves in when availing of health insurance plans. Ironically enough, it seems that the ones who require health insurance policies the most, end up

1. Having to pay either a higher premium due to spiked risks posed to even the best health insurers, or
2. Facing severe financial problems while paying the premiums due to their inconsistent earnings and the one-time premium payment.

With such considerations in mind, the IRDAI or Insurance Regulatory and Development Authority of India had an epiphanic moment that would lead to financial convenience over availing of health insurance plans, thereby increasing the health insurance penetration in India. The IRDAI, in 2019, instructed health insurance providers across the country to offer EMI options for premium payments that would better satiate the purpose of availing health insurance plans (mitigating the pressure on one’s savings).

Needless to say, this had the desired impact on the inflow of potential health insurance policyholders from diverse economic backgrounds.

How does Health Insurance on EMI work?

As explained above, the sole purpose of the introduction of health insurance on EMI is to mitigate the financial burden that this insurance tool brings with it considering the hefty yearly payment. Now, health insurance premiums are less likely to get cheaper than it currently is, what with the rising medical inflation, advanced treatments with state-of-the-art technologies, etc. The best way to ensure that individuals have access to such fine medical perks without bludgeoning their savings is by availing of health insurance premiums. And the best way to handle such high-end premium payments is by opting for health insurance premium EMIs.

However, EMIs bring with them a certain level of complication when it comes to the claim settlement process. Take a look -

What is the Claim Process for Health Insurance Plans Offering Monthly EMIs?

A. The Cashless Mode:

STEP 1: As usual, as with any cashless mode, in this case, too, the policyholder has to inform the health insurer in advance about the hospitalisation situation.

STEP 2: The hospital desk raises a pre-authorisation request with the health insurer’s claim team.

STEP 3: The claim team checks the admissibility of the claim raised, whether or not the policy allows coverage for the policy, any disease-wise sub-limit (if applicable), and the status of any pending premium instalments (if any).

STEP 4: If the claim is payable with instalment recovery, then -

The health insurance provider releases the pre-authorisation letter with a DISCLAIMER that the pending instalment amount will be adjusted during the clearance of the claim.

Endorsements/Changes will be made, accordingly, in your policy after the cashless settlement process. These changes are then shared with the policyholder.

No SMS/mails are sent to the client about this instalment recovery.

B. The Reimbursement Mode

STEP 1: The policyholder will reach out to the health insurance provider or to the Third Party Administrator (TPA) and raise the claim.

STEP 2: The claim team of the insurer checks the coverage admissibility, policy conditions (like permanent exclusions, waiting period, disease-wise sub-limits, etc.), and the status of the instalments of premiums (if they are completed or they are pending).

STEP 3: The remaining claim process is largely dependent on whether the claimed amount is higher or lower than the consolidated premium already paid over instalments.

Unlike in the case of any other cashless and reimbursement health insurance payment method, in the case of health insurance plans with EMIs, the entire claim settlement process is an “if-then-else” situation. The situation is dependent on how much of the premium has been settled for the year as compared to the claim raised.

This will be best explained over use cases for the same.

What are the use cases for Health Insurance Plans Offering Monthly EMIs?

Shyam is a 55-year-old who has availed of a health insurance policy. Now, since he has been undergoing certain financial strains over his current liabilities and lacks a steady source of income owing to his closing senior years, he chose the EMI payment option for his health insurance premiums.

Coverage = INR 10 lakhs

Yearly Premium = INR 31,444

Monthly EMI Premium = INR 2620/month

Now, say, Shyam develops an unfortunate health complication, requiring hospitalisation after 3 years and 5 months of availing of the policy. So,

for the current year, he has paid 5 months of the EMI, which adds up to INR 13,100.

His pending amount for the year is INR 18,340.

So, what happens if his claim amount is less or more than his paid accumulated instalment amount?

Advantages & Disadvantages of Monthly EMIs in Health Insurance Plans

A. Pros of Monthly EMIs in Health Insurance Plans

• Financial convenience

One of the foremost perks of availing of health insurance plans that come with a monthly EMI facility is the financial balance that it offers. So, you have at your disposal one of the best health insurance plans that easily fetches a hefty yearly premium and yet end up paying smaller amounts over monthly EMIs - balancing out your medical emergencies and your financial well-being.

• Beneficial for senior citizens/irregular income holders

When it comes to senior citizens, health insurance premiums are significantly higher than usual. This is because of their health complications and the chances of higher payout over hospitalisation/ treatments. And yet, considering their absence of a significant source of income or financial dependency on their children, the best health insurance policies for senior citizens become unaffordable, leading them to compromise over the quality of healthcare services that they avail.

On the other hand, there are the freelancers or the self-employed group. Their lack of consistent flow of cash over the year makes it difficult to deposit a substantial amount at the end of the year as a health insurance premium, even though they are equally vulnerable to the multitude of ailments that might take a serious hit on their savings.

In both these cases, monthly instalments to pay off the health insurance premium is a great consideration as it offers them a financial security blanket during medical emergencies without demanding a lot from their savings at one go. With the senior citizens, the EMIs are quite approachable considering how they can pay it from their monthly pensions and in the case of the freelancers, via their monthly payment from projects.

• Access to a higher sum insured

Consider this - Modern treatments in the medical field yield high chances of cure with minimal side effects. However, such advanced treatments require high fees.

Again - Medical inflation is at an all-time high and the cost of treatments and the complexity of ailments will only rise in the foreseeable future.

Under such circumstances, you need to be on the lookout for the best health insurance plans that offer high coverage against the lowest possible premiums. However, this is easier said than done. If you focus too much on the amount to be paid, you may actually be facing dire consequences of landing up with a not-so-good health insurer that gives you trouble during claim settlement.

Rather, the right way ahead would be to opt for high coverage with the top health insurer in the market and choose EMI options for the payment process.

• Easy coverage for family health plans

When it comes to family health insurance plans, higher coverage is a mandate considering the number of policyholders, their age, and their health complications that require substantial financing. With a monthly instalment option in your health insurance plan, such high coverage is conveniently available sans much pressure on one’s savings.

• A negligible rise in premium

Take a look at the example provided above. The numbers aren’t arbitrary. These are specific numbers from a reputed health insurance provider and for one of their best-selling plans.

Now, notice the difference in premium for a year, and as consolidated over EMIs for a year:

• Yearly Premium = INR 31,444
• Monthly EMI Premium = INR 2620/month
• Yearly Premium via EMI = INR 2620 * 12 = INR 31,440

Yes, you end up paying only INR 4 extra if you opt for the EMI payment option and these days a cup of tea from a roadside stall comes at INR 10. So, the spike in premium is near 0.

B. Cons of Monthly EMIs in Health Insurance Plans

• Hassle over the claim settlement process

The best health insurance providers take pride in their speedy and hassle-free claim process. However, in the case of health insurance plans offering EMIs, the claim process is dependent on the calculation and payment clearance of the due premium payment for the year. This makes even the cashless claim settlement process lengthy and cumbersome.

• Dire impact on the credit score in case of missed EMI

EMIs for health insurance premiums like for any other product have an impact on the credit score of an individual. So, while a missed EMI in your health insurance plan would mean paying at the earliest within the stipulated grace period, it would have a dire impact on your credit score. And if you have a long-term plan to avail of a loan, this dip in credit score will become a definite hurdle.

• The processing fee needs to be considered

EMIs usually fetch a processing fee charged annually. This is something that you should definitely enquire about before availing of a health insurance plan offering EMI benefits. The charges might be nominal (depending on the health insurer), however, it’s best to have a comprehensive idea about EMIs on your premium before availing of this option.

• Possibility of debt accumulation

You might already have some existing financial liabilities for which you are charged at the end of a month. Adding the EMI charges for your health insurance policy would mean making certain adjustments to your miscellaneous expenses. Such debt accumulation needs to be carefully thought out first to make sure that you are making the best possible financial choice for yourself and your family.

Conclusion

Considering the IRDAI’s regulations and the driving need for health insurers to boost their inflow of policyholders, all of the insurance providers now offer EMIs for their premium payments. Evidently, this instalment mode has been working out well for both the insurer and the policyholders. The cons are quite nominal. However, debt accumulation is one of the most important downfalls that one has to consider before they avail of this option. Other than that, with the high demand for health insurance plans and the steeped premiums, EMIs have become the best possible financial upper.

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