If the renewal date for your health insurance is falling anytime soon, you may consider buying a multi-year policy by paying a single premium. These policies will benefit you as most insurers are currently offering a discount, and you will get locked into the same rate for multiple years, provided you don’t cross the age slab that warrants a change in premiums.
But what if the amount of single premium you pay for a multi-year policy exceeds the tax deduction limit available on health insurance premiums under Section 80D? According to the income-tax law, you can claim the tax deductions proportionately over the policy term.
Under Section 80D, a resident individual can claim a tax deduction of up to ₹25,000 in a year for medical insurance premiums paid for self, spouse and children, and an additional₹25,000 for premiums paid for parents. If the parents are senior citizens and you are paying medical insurance premiums, you can claim an additional deduction of up to ₹50,000—taking the total deduction to ₹75,000.
How to claim proportionately: Getting the claim proportionately in multiple years for single-premium policies can be useful. Here’s how it will work. Suppose your health insurance premium for a sum assured for a family of four (husband, wife and two children) in one year is ₹25,000, the premium for a two-year policy will be ₹50,000 (assuming that the premium won’t increase next year because of change in the age slab). If the insurer gives a discount of 7.5%, you would pay a single premium of ₹46,250 for the two-year cover. Keep in mind if your premium is set to increase in the second year due to change in the age slab, the premium will be calculated accordingly.
If you were to claim tax benefit proportionately, you would get a deduction on half the premium amount or ₹23,125 in both years. Insurers usually issue a certificate mentioning the amount you can claim each year as deduction.
Another advantage is that your premium gets locked in for two years, and you don’t need to pay anything extra even if the insurer revises rates. The benefit is available only if the payment is made in any manner except cash.