Multi-year health insurance policies are gaining significant traction in the Indian market, with experts estimating they now account for 10 to 15% of health insurance policies sold in the country. According to reports from Business Standard, these policies allow customers to pay premiums for several years upfront, offering premium stability and upfront discounts that shield buyers from annual rate revisions. Most insurers currently offer one, two, or three-year policy tenures, with the three-year option being the most common in the market, while only a few insurers provide tenures up to five years.
The primary advantage of multi-year policies lies in the substantial discounts offered to customers who pay the entire premium upfront. As reported by Business Standard, four- or five-year policies generally offer discounts of 10 to 12.5%, though these discounts vary significantly from company to company as there is no fixed industry standard. The discount structure ensures that customers receive the full benefit only when paying the premium in one lump sum, with no discount available if premiums are paid in installments. Insurance premiums have been rising steadily, making these policies attractive for buyers seeking cost certainty and savings on their health cover.
The biggest drawback of multi-year policies is the significant restrictions on flexibility and portability. According to reports from Business Standard, porting can only be done at renewal, and changes within the same plan must wait until the end of the term. Policyholders cannot add benefits such as consumables, annual health check-ups, and outpatient department (OPD) benefits mid-term. However, customers can cancel their policy before the term ends, with refunds being proportionate based on the remaining policy years. Importantly, no refund is applicable for the policy year in which a claim has been made, and insurers will adjust refunds to account for the upfront discount given.
At policy renewal, new pricing applies only when the policy comes up for renewal at the end of the policy tenure. As reported by Business Standard, premium increases range from 5 to 7% in some cases and 12 to 14% in others, depending on the customer's age and medical inflation. The full multi-year health insurance premium cannot be claimed entirely in a single year under Section 80D of the Income Tax Act. Taxpayers under the new tax regime cannot claim this deduction, with the total premium needing to be claimed proportionately over the policy term subject to applicable annual Section 80D limits under the old tax regime.
Multi-year policies are suitable for buyers seeking cost certainty and savings, particularly those with stable cash flows and those who wish to avoid the administrative burden of annual renewals. According to Business Standard, these plans may work well for young adults and families looking to lock in premiums at lower age-bracket slabs. However, buyers should avoid these policies if they expect family situations to change, have fluctuating incomes, or plan to migrate abroad or switch insurers. Senior citizens and individuals with fluctuating incomes may need to avoid long-term policies because a large lump-sum payment can strain liquidity, and customers should avoid financing premiums using high-interest EMIs as the total interest charges often surpass the upfront discount.
