Insurance: Four tips to keep your risk cover intact

April 14, 2020 12:30 AM

Though there is an additional 15-day grace period due to the Covid-19 lockdown for renewal of insurance policies, pay the premium if you have the cash flow. And buy a health insurance plan if you don’t have one

Given the severity of the epidemics, it is better to avail an individual health insurance policy at this time if you do not have one or have inadequate coverage.Given the severity of the epidemics, it is better to avail an individual health insurance policy at this time if you do not have one or have inadequate coverage.

By P Saravanan & S Jayaprakash

This may be the first time that the insurance industry has faced a passive March closure. Owing to Covid-19, the last mile connectivity through insurance agents is missing both for renewals and new business. The government provided an additional 15 days grace period for the renewal of policies, which means technically the policies can be renewed without following any lapse procedures.

Still, if risk strikes a policyholder during these 15 days, will insurance companies cover the same? According to Section 64VB of the IRDA Act, risk cannot be covered without contribution from customer. While we await to hear more about the exclusions that may be granted, here are some tips to policyholders to keep their policies intact.

Renewal premiums
If you are salaried, employers are mostly paying your current month salaries and with wide online payment options it is better to use one of the channels to pay the premium. Policyholders should understand that moratorium by bank is different from that of insurance. In case of the banks, the banks carry the risk and hence the customers are not at loss personally, but in the case of insurance, the policyholder carries the risk personally and it is important to mitigate such personal risks at the earliest. So, those who are able to pay should make payments towards renewal premiums.

Individual health insurance
Given the severity of the epidemics, it is better to avail an individual health insurance policy at this time if you do not have one or have inadequate coverage. You can consider this purchase as almost at a discounted price. How? As the salary for this month is getting credited, it is better to invest in a health-related insurance policy due to health epidemic reason. This is comparable to a practice in real estate gains, wherein when we sell a house for profit and the government provides a time window to invest in another house to avoid capital gains tax.

Group health insurance
Similarly, there are many small and medium enterprises generally refraining from availing group health insurance policies for their employees, citing the reason of existing coverage offered under Employees’ State Insurance Corporation which is mandatory for eligible employees. Hence, the employers and the employees in small firms can discuss among themselves and use a portion of the salaries to purchase at least a small ticket insurance policy under group plan. Probably, this will in turn increase the loyalty of the employees and employers can deduct this contribution under expenses.

Tax benefits
Though the tax break on contribution to National Pension System (NPS) made by the employer is still available under the new tax regime, similar benefits will not be allowed for health insurance. However, it is better to continue to pay the premiums with or without tax benefits as health insurance depends upon continuity of policy in force and government can always change the policies within a few years, but it will be difficult to go back to get the benefits of continuity.

To conclude, one should follow the above tips to keep one’s polices intact so that the insurance company offers a payout, if risk happens.

P Saravanan is professor of finance & accounting, IIM Tiruchirappalli.
S Jayaprakash is co-founder of Nanobi Analytics, Bengaluru

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