IRDAI is likely to issue an exposure draft on financing of non-life premiums which could allow people to borrow from financial institutions to pay non-life insurance premiums.
At a recently held event, Nilesh Sathe, Member, Life, IRDAI said that the insurance regulator is planning to allow policyholders to borrow money from banks or NBFCs to buy an insurance policy.
Sathe said that this practice is prevalent in international markets. He said, “All over the world if a person cannot afford to buy an insurance policy by paying a large ticket premium amount upfront, she can finance her policy through banks. This is relevant for non-life insurance products as people can’t buy it in installments. So we are planning to come out with a discussion paper on financing of premium amount.”
Currently, there is no loan available in India to finance an insurance policy except a bundled product like home insurance. Typically, banks bundle a home loan insurance cover with home loans. This strategy helps them reduce risk of default and earn decent commission from sales. In most cases, policyholder has to bear the burden of premium on her own.
If the proposal goes through, policyholders can fund their health insurance and motor insurance premiums through loans. Though the premiums of plain vanilla health insurance and motor third party policies are low, specialized policies like cancer cover, diabetic care health plans, motor comprehensive insurance, cyber insurance and professional indemnity cover are very expensive.
Kapil Mehta of SecureNow Insurance Brokers is of the view that the move, if implemented, will benefit the insurance industry in a big way. “Firstly, financing will help a lot of people to buy non-life products who can’t afford to pay high premiums. This will help increase the penetration of the industry. Also, since bank is financing the premium, they will do a better due diligence which can help mitigate frauds.”
However, it is not clear if a tax rebate can be claimed for medical insurance premium if the premium is funded through a loan.
The insurance regulator is likely to release the discussion paper by October.