IRDAI has allowed insurance companies to make claim payments of personal accident and benefit-based health insurance policies both as lump-sum and in installments. This will be based on the preference of the policy holder.
A working group of the regulator had taken after considering recommendations by insurance providers on providing claims in installments as well. According to the regulator, this will help ever increasing financial needs of a family on the happening of a contingent event under a policy.
Since, chronic diseases require ongoing or long-term monitoring through regular consultations, examinations, checkups, and /or tests, the need for payment in installments assumes greater importance.
Further, when compared to the single payment mode, periodic payout has certain advantages. It provides a secure and regular income over a defined period of time. Installment payments are best suited where a policyholder being the sole bread-earner of the family is struck with a grave or total permanent disability. It is useful mainly in cases of protracted and expensive medical treatment.
It is also a safe option in the scenario where the beneficiary is not well versed with the financial markets as he/she would find it difficult to manage large sum of funds received in a single payment. A wrong financial decision/advice can lead to irreparable loss.
However, some insurance providers found that installments will add administrative cost in case of smaller claims. For this, IRDAI recommended that payment of claim amount in installments shall not be a default option. It should be in addition to the lump-sum option and shall be allowed based on the option exercised by the policyholder.
Further, the General and Health insurance companies may also be allowed to offer the option of payment of claims in installments upon happening of a contingent event in cases of Indemnity products that have a fixed benefit component, as well products for specific illness like cancer that have both fixed and indemnity components.
The installment facility may also be available for fixed benefit riders/ add-ons attached to the indemnity policies.
Premium rate should be same for both the options, though the total claim payment in installment option should always be higher than the lump-sum option. Linkage to interest rate should be avoided and fixed payout structure which is part of the claim installments schedule must be explained upfront to the policyholder, IRDAI recommended.