COPING WITH RISING PREMIUMS

It is not just health insurance premiums that are rising on the back of Covid. Even life insurance premiums are on the rise.

Insurance advertising mostly revolves around a morbid setting or showcases a situation where the target audience visualises the financial pain they would face in the absence of insurance. This approach works because of people's loss aversion bias. In the case of life insurance, family members are shown thanking their loved ones who left them financially secure. The fear of death and disease have made both life and health insurance sales spike in the past two years because of the ongoing pandemic.

No doubt life and health insurance are essential, but one should consider the extent of cover one actually needs. One should also find the kind of policy that would best help them or their dependants when the benefits come into play in a hasslefree manner. There is a cost the policyholder pays by way of premiums and there is a scope of cover defined in the policy document that details what the policy would pay for under specific conditions.

Now, think of insurance as a bet one would love to lose and be happy to pay the premium to keep the bet on. Further, loss-aversion makes one commit to insurance plans even if some of the losses outlined in the plans are unlikely to occur. For instance, imagine a health insurance that pays for 28 different types of surgeries. Very few policyholders may claim such benefits beyond a second or third time. Insurance companies are guaranteed business as they manage to strike a chord with policyholders about the need for financial security.

➘ INCREASING INSURANCE COST

In recent months, several life and health insurance firms have begun revising their premium rates to keep up with the claim experience on the back of Covid. In both types of insurance, the number of claims have been on the rise and so has been the demand for insurance due to the Covid-related scare. Insurers have slowly started to review and revise their cost structures, especially the premium on policies. Any rise in premiums has to be approved by the Insurance Regulatory and Development Authority of India, and several insurers have got the necessary approval, even as many others have applied for it.

While insurers may be right in their quest to increase premiums, the fallout is a rise in the burden on policyholders. A 20 per cent increase in premiums across the board would impact the cost of future premiums at a time when many policyholders are already facing financial challenges. Moreover, for people looking for a fresh insurance policy, it is not just about costs but also about the entire process of underwriting. Underwriting is the process of evaluating an individual’s state of health, among other factors. It entails undergoing stringent medical tests and other factors that could significantly impact the premiums they pay, especially if they tested

ONE SHOULD FOCUS ON MAINTAINING THE COVER AND NOT COMPROMISING ON IT, UNLESS IT BECOMES IMPOSSIBLE TO PAY PREMIUMS

positive for Covid.

It is a challenge for policyholders to decide between having adequate insurance and paying a higher than planned premium for it. There is no easy way out for them, especially when insurers are unlikely to reduce premiums later when business improves. In case of long-term plans that run into 15-20 or more years, the impact of rising premiums puts everyone in a tight spot. There is little to choose and one should focus on maintaining the cover and not compromising on it, unless it becomes impossible to pay the premiums. This situation also gives policyholders an opportunity to review their insurance cover.

If policyholders are part of group insurance, they should surely continue the cover as the premiums on such policies won't be drastically affected like individual plans. Moreover, chances are that your employer-provided insurance cover would be part of your employee benefit programme and won't directly impact your finances. So, if at all you plan to let go of a policy, evaluate between your company-provided insurance and your personal insurance. Employer-provided insurance does face risks, especially if your job is at risk, and individuals would know better where they stand in their organisation and where the organisation itself stands.

In case of life plans, one should weigh in favour of retaining pure risk term insurance plans as they are always cost-effective compared to plans with a savings or investment component. So, if you have four policies with three being savingsand investment-oriented and one being pure risk cover, retain the last at any cost. You can evaluate the financial outcome of giving up on savingsand investment-linked insurance. It may also be a good idea to check your future financial commitments such as children’s education or repaying a home loan towards which you have taken insurance. The priority of the financial goal should weigh your decision of holding on to a policy or giving it up.

When it comes to health insurance, the choice of giving up the cover can leave you extremely vulnerable. Maintain a standard health insurance cover that doesn’t include very specific health conditions. You could also evaluate the top-up options one tends to avail with health insurance and see how much financial risk you can take before making any change.

You could also consider reducing your health insurance cover if your insurer allows you to step down on the coverage for a few years. There is no clear ruling on insurers providing such step-downs, but they have been found to consider such requests. You have the option to use a higher deductible or the co-pay option (see Deductible and Co-pay) to reduce premiums.

The proposed rise in premiums, especially in health insurance, is unfair on policyholders who have made no claims or experienced any health issues. Typically, premiums are increased for those who raise a claim, but that rationale is not being applied when raising premiums across the board. With the business built on the loss-aversion psychology of individuals, there isn’t much that policyholders can do except vent their ire, even as they adapt to this untimely increase in premiums. ■