Is IRDA's new insurance policy guideline helpful?

Insurance Regulatory and Development Authority (IRDA) has issued new guidelines with respect to insurance policy. According to the guidelines, if a health insurance claim falls between two policy years then the insured can make a claim up to twice the sum assured minus the premium for the next year. Sailesh Multani, Edelweiss Financial Planning spoke to CNBC-TV18 regarding the new guidelines and how are they helpful.

Also Read: Why dormant account, policies should be closed ASAP Below is the verbatim transcript of Sailesh Multani’s interview on CNBC-TV18 Q: Currently most insurers offer insurance cover of one policy year even if the claim falls between two policy periods. But from October, an insured will be able to claim health insurance benefits amounting to twice the sum insured if their claim falls between two policy years. How exactly does this work and how do they stand to benefit?
A: There is a new guideline from the IRDA which specifies that if a health insurance claim falls between two policy years then the insured can make a claim up to twice the sum assured minus the premium for the next year. For example, if a person has a health insurance policy of Rs 2 lakh and this policy is due for renewal on March 30, 2013. He is hospitalised on March 28, 2013 and he gets discharge on 2nd of April that is after the renewal of the policy and the hospital bill is around Rs 3 lakh.
According to the new guidelines, he will have a total cover of Rs 4 lakh in this case, that will be Rs 2 lakh for current year that is 2012-2013 and Rs 2 lakh for the next financial year that is 2013-14. In this case as per the guidelines, the insurance company will have to pay the entire Rs 3 lakh to the insured minus the premium for the next year. So this is the change that will come and is definitely a customer friendly approach by the IRDA, because it is possible that people who are going for a medical treatment may end up paying more than what their cover would be. In this case it will be a blessing, because part of the sum assured for the next year would also be paid by the insurance company and this is what the new change is going to be. Q: Does this work only for renewal of the same policy or if someone has decided to change their policy then also they can avail the benefits from both sides?
A: In this case the guidelines state, when the claim is made the insurance company would deduct the renewal premium for the next year. So automatically the policy would be renewed and that is how the guidelines go. Q: It is only for renewal of policies, it is not if your policy was lapsing and you decided to discontinue with that company and go to another company altogether, does this apply in those cases?
A: yes. Q: I wish to buy a house after 3 years for which an estimated down payment would be of Rs 5 lakh. I can invest Rs 10,000 per month to achieve this goal. How should I invest this money?
A: Rs 10,000 that you will invest is for the down payment of house. In this case more than the return it is a capital preservation that will be of utmost importance. Given that your investment horizon is less, I would not recommend any investment into a risky asset class like equity. So, you can look at fixed deposit or a recurring deposit and aim at getting 6-6.5 percent return. In that case, if you invest Rs 10,000, you will be able to accumulate close to Rs 4 lakh in the next three years and there will be a shortfall of Rs 1 lakh.
If you are willing to take some risk, then you could start Systematic Investment Plan (SIP) into short-term income funds, because time is now ripe for investment into bond funds as Reserve Bank of India (RBI) has said that they will cut interest rates in the coming year. However, this will involve an active portfolio management because you need to watch on the interest rate movement and manage your portfolio accordingly. If you are not able to do that then it becomes important for you to increase the savings from Rs 10,000 to approximately Rs 12,500 and then you can look at accumulating Rs 500,000.