Receiving the insurance claim money as a lump sum is currently the only option for the policyholders of general and health insurance products.
Insurance claim settlement process: Receiving the insurance claim money as a lump sum is the only option for the policyholders of general and health insurance products. However, this is set to change as guidelines are being devised to allow insurers to pay the claim amount in instalments rather than in a lump sum. A major change in the insurance claim settlement process is on the cards.
The Insurance Regulatory and Development Authority of India (IRDAI) has released an exposure draft on the guidelines on settlement claims in instalments with respect to personal accident and benefit based products such as critical illness plans. “The same option is already there in term insurance plans. The policyholder has the option to choose the mode of payout either in a lump sum or in instalments,” says Amit Chhabra, Head- Health Insurance, Policybazaar.com.
However, such a facility is introduced for the first time in case of general and health insurance products in the country.
“This move is in favour of customers as it provides them with the flexibility to choose the payout option based on their current and future lifestyle needs. The fixed benefit plans have large payouts and therefore, having a choice to decide on the lump sum or monthly instalment payout will give customers the freedom to utilize the payout as per their needs,” says Chhabra.
Currently, the claim amount in a personal accident policy or a critical illness benefit is paid as a lump sum to the nominee or the policyholder, respectively.
However, if the proposals are finally accepted and if the policyholder opts for claim amount to be settled in instalments, the nominees will get a stream of income over a predetermined period of time, post triggering of the claim.
As per the draft guidelines, some of the factors that insurers need to ensure are:
The claim payment period of the product shall be maximum of five years which shall be subject to product design. The claim instalments shall be spread during the claim payment period.
The periodicity of the instalment can be on a monthly or quarterly or bi-annual or annual basis which shall be subject to product design.
The policyholder can opt for the instalment option in respect of Personal Accident and Benefit Based health insurance products and fixed benefit components of indemnity products / fixed benefit riders/add-ons attached to indemnity policies of both Individual and Group Products.
The policyholders may be provided with an option of choosing either settlement of a claim in lump-sum or in equated instalments or both. Payment of claim amount in instalments shall not be a default option. It shall be in addition to the lump-sum option and shall be allowed based on the option exercised by the policyholder.
The policyholder may be allowed to opt at any stage of the policy i.e. at the time of policy inception, on renewal, during the policy term or at the point of claims as per the nature of the policy.
A combination of both the options i.e. a percentage of the sum assured as a lump-sum payment at the time of claim and the balance sum insured in instalments for a definite period may also be offered as a part of product design.
The instalment option may be offered only beyond a certain threshold limit of the base sum insured, subject to the design of the product.
The policyholder shall be given an option of altering the mode of receipt of payment of a claim from lump-sum to instalments and vice versa during the policy duration any number of times till the point of claim, which shall be effected in the policy document by placing suitable endorsements.
Subsequent to the commencement of payment of claims in instalments, an option shall be made available to the policyholder to withdraw this option and seek the future instalment amounts in lump-sum.