Check out the benefits of returning insurance premiums
The market that is still wide open has prompted insurance companies in Indonesia to continue to pursue product innovation. Of course, their goal is that more and more people are interested in buying life insurance products, especially health insurance.
The implementation of the Social Security Administering Body (BPJS) for Health has more or less influenced people’s interest in buying commercial insurance. As a result, commercial insurance product innovation through features or marketing gimmicks continues to be encouraged by manufacturers.
One of the features that have recently been offered more and more is the premium return feature with certain conditions. For example, after the insurance contract runs for a certain period of time and there are no claims, the customer will get a premium refund. This feature is often named no claim bonus or return on premium.
This feature is widely offered by both life and health insurance products. For example, Axa Hospital Plus Life. This product made by Axa Indonesia offers a 100% premium return feature after the insurance contract lasts 12 years, whether there are claims or not during that time.
A health insurance product that has similar features is Cigna Care and Save, released by Cigna Indonesia. Return of premium of 50% after the insurance contract runs for 3 years, whether there is a claim or not. There is also Cigna Health Protection which returns 25% of the total premium if within 2 years there is no claim from the policy holder.
An example of another product, Avrist Smart Guard, a health insurance that offers a 50% return on premiums after the contract runs for 6 years to 9 years. Meanwhile, if the insurance contract has been running for 10 years, the premium will be returned 100%. Adi Purnomo Wijaya, Vice President Director of Avrist Assurance, explained, features return on premium will benefit policyholders. “The policyholder’s money is not forfeited when the end of the premium coverage period or when there are no claims,” he said to KONTAN.
This feature may attract many Indonesians who tend not to be familiar with how insurance products work. There are still many people who think buying insurance is a waste of money because premiums usually remain forfeited even though there are no claims during the contract.
So, is there an insurance product with features like that arguably an attractive insurance product to look at? Before rushing into it, it’s a good idea to keep listening to the advice of financial planners.
According to the needs
Buying insurance is actually transferring the risks we have to the insurance company through premium payments to get certain coverage. In the cash flow column, insurance premiums are entered in the expense column. Because it is related to that cost, the purchase of any insurance must go through careful consideration.
Financial planners remind, the main principle of assessing whether or not an insurance product is feasible for you to buy is to make sure the product fits your needs. “In addition, it is also necessary to consider the suitability of insurance product prices or premiums with our financial condition,” said Freddy Pieloor, Moneynlove Financial Planning financial planner and insurance broker.
The insurance budget should ideally take up no more than 10% of your annual income. Knowing what kind of protection needs are right also to prevent you from being trapped in insurance product features that you really don’t need.
Well, here are the things you need to know more about the insurance premium return feature in the opinion of financial planners:
Type of protection
In the market, most insurance with a premium return feature of up to 100% is a daily benefit insurance or cash plan. Unlike the types of hospital benefits, cash plan insurance does not look at the details of the costs that arise when a risk occurs. The insurance company reimburses the risk according to the day you are treated.
For example, if you buy cash plan insurance with a scheme of Rp. 1 million per day, then when you are hospitalized for 10 days, the insurance reimburses you for Rp. 10 million even though your hospital costs are actually Rp. 50 million or only Rp.
Thus, this type of insurance is more appropriate as a replacement for lost income due to illness or accident. Financial planners assess that the cash plan scheme is more suitable as a complement to the health protection you already have.
Benefits are limited
There is no free lunch. That principle you should always remember when researching a product offering of any type. Since most of the insurance that features refunding premiums is insurance with a daily benefit scheme, the benefits provided are also relatively limited and not detailed.
In general, for this type of health insurance with a cash plan scheme with a premium return feature, the benefits provided include inpatient benefits, compensation when being treated in an intensive care unit (ICU), then death benefits. While other risks, such as the cost of doctor visits, surgery, ambulance costs, and others, are not covered.
Weigh inflation
Most of the premium return features offered by a life or health insurance product can only be enjoyed after a certain period. For example, only returned after 12 years of coverage. There are also those who are 3 years or 5 years old and their premiums can be returned, although not only partially, and so on.
Eko Endarto, Finansia Consulting’s financial planner, assesses that if you focus on the terms of time, there is a risk of a decline in the value of your money due to inflation.
Put the word, the total premium you have paid for this product in the 10 years since 2015 is IDR 60 million. In the tenth year or 2025 you will get a return of 100% premium equal to Rp. 60 million.
Assuming an annual inflation rate of 10% and an average reference interest rate of 6%, in 2025 the value of Rp. 60 million has actually decreased to the equivalent of Rp. 41.42 million.
However, if you are desperate to buy insurance with a premium refund, Eko suggests choosing a product with a faster repayment period so that the risk of reducing the value of money is less.
No medical tests
Many insurance features return on premium or non-claim bonus that do not require a medical examination when registering. For example, Cigna Health Protection which gives a bonus of 25% of the premium if there are no claims for two years. Several other health insurance products, especially those with a large sum insured, require yearly medical tests.
Budi Raharjo, OneShildt Financial Planning’s financial planner, said that insurance with return on premium features generally also does not require a medical test every year because the insurance coverage period is usually set at the beginning. For example, 5 years or 10 years. “Therefore, policyholders should not be late to pay premiums because it could result in their protection being cut off in the middle of the road,” he said.
There are other advantages because the model is term insurance. Apart from not needing to renew the medical test, the premiums paid are fixed during the contract period regardless of the age of the insured person over time.
Premium rates can be more expensive
According to the observations of Risza Bambang, OneShildt financial planner and Chairman of Padma Radya Aktuaria, insurance products with return on premium features can be categorized as endowments or endowment insurance containing protection and savings. “Usually, insurance like this tends to be more expensive than regular insurance where the premiums are sunk,” he said.
Insurance companies, said Risza, would have done a careful calculation so that they could still be profitable even though they returned the premiums paid by policyholders at the end of the contract period.
In order to be able to compare the high or low price of a product, according to Risza, you need to compare the entire contents of the product. “Don’t just look at the rupiah value given by the return on premium feature,” he said.
You need to see in more detail what benefits are provided by a product, then the required premium obligations, the requirements that are applied to be able to get return on premium, as well as other terms and conditions contained in the insurance product policy.
Compare with other products that do not have a return on premium feature. In order not to get confused and buy the wrong product, financial planners recommend that you return to the original principles, namely what kind of protection you need and how much budget protection you have.
That way, your protection needs can be fulfilled precisely and efficiently.