For far too long, life insurance in India has been perceived as an optional purchase. Low awareness on what life insurance does for an individual and the perception that the product is difficult to understand have been key deterrents for Indians to benefit from life insurance policies.
But the coronavirus pandemic has reduced these hindrances in India to some extent. There is a surge in awareness of the need of life insurance, with people realising that unforeseen events can disrupt our lives.
India’s share in the global life insurance market was 2.61% during 2018, according to the latest report by the Insurance Regulatory and Development Authority of India (IRDAI). But we may now be seeing a shift as consumers combat the challenges that coronavirus has brought forth.
Indians Evaluating Life Insurance Options More Seriously
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Top life insurance companies in India are experiencing a dramatic shift in the way consumers look at life insurance due to the coronavirus crisis.
Consumers are taking a “DIY” approach to understanding insurance products, which is crucial to any financial purchase, says Anup Seth, the Chief Retail Officer of Edelweiss Tokio Life Insurance.
Edelweiss Tokio Life Insurance has witnessed a 21% year-on-year growth in individual annualized premium equivalent (APE) in the first quarter, which indicates increased customer interest. APE is a measure used for comparison of life insurance revenue by normalising policy premiums into the equivalent of regular annual payments.
India’s biggest life insurance company, Life Insurance Corporation of India (LIC), in an interview with Indian newspaper Business Standard, said it foresees fairly steady growth in premiums by the end of the third quarter.
Aalok Bhan, the Chief Marketing Officer of Max Life Insurance, has seen the demand for pure protection plans increase. More than half of the plans sold in Q1 were from the protection category. He too thinks coronavirus has helped current and potential customers realize the need for protection policies and guaranteed savings options.
Pure protection plans refer to term life insurance plans that offer protection to the policyholder for a set tenure for which the plan is taken. In the event of unexpected death during the term’s span, the policyholder’s beneficiaries are granted protection benefits detailed in the insurance plan.
Casparus JH Kromhout, MD & CEO of Shriram Life Insurance, observes the term insurance market shifting mostly online.
He notes increased interest in long-term savings products but warns an uptake would majorly depend on the economic recovery and the return of stability in income.
How to Choose a Life Insurance Policy
Many experts think of a robust life insurance policy as the first brick of the consumer’s financial planning foundation. There are various types of life insurance policies that offer definite returns to fulfill financial goals, safeguard retirement plans and assure a regular stream of income even during risky times. These positives make life insurance a must-have.
Know Which Policy Suits Your Needs
Choosing a policy that suits your requirements is important. There are different life insurance policies available in India depending on your needs. For example, your life insurance purchase could change depending on your stage of life. There are policy options for those who want to save for the future, plan financially for children, secure parents or plan their own retirement.
Knowing about the different life insurance policies is a good first step.
A term insurance plan offers protection for a set period of time. If the policyholder dies during the term, beneficiaries are paid the policy amount. However, beneficiaries do not get paid any sum if the policyholder lives past the term of the insurance.
A whole life insurance provides lifelong cover.
Parents can opt for an insurance policy for their children that ensures financial security of the child through their stages of growing up.
- Unit Linked Insurance Policies (ULIP)
ULIPs offer a combination of protection and investment. They are financial instruments designed to allow consumers flexibility and choice on how their premiums are invested.
The value of a ULIP is linked to the prevailing value of units a policyholder has invested in the fund, which in turn depends on the fund's performance. Customers are given the choice to choose the fund and switch funds during the tenure of the life insurance policy.
ULIPs are complex financial instruments. It’s important to understand features such as the lock-in period, surrender value and surrender charges.
This policy provides a benefit based on a certain percent of the sum assured on a periodic basis. When the term expires, the balance amount is paid as maturity value.
This plan is a savings-linked insurance policy with a specific maturity date. If the policyholder dies during the plan period, the sum assured is paid to the beneficiary nominated. In the event that the policyholder survives the policy tenure, the maturity proceeds become payable to the policyholder.
- Pension Plan or Annuities
Pensions are considered an ideal way to ensure a sustained income after retirement. Other post-retirement benefits offered by employers, such as Provident Fund and gratuity, which is paid at the end of the professional life tenure, help in getting a fixed predetermined sum disbursed when you reach retirement age.
Indian consumers can choose between two options:
With an immediate annuity, the annuity payment begins as soon as the person hits retirement. You pay for an immediate annuity in one lump sum when you buy it.
A deferred annuity provides regular payments from the insurance company. The annuity holder pays the insurer a set sum until a vesting age or a vesting date. After this, the insurance company disburses funds to the annuitant.
The annuity holder has the option to encash 1/3rd of this corpus fund upon arriving at the vesting age or the vesting date. The other 2/3rd of the fund is used for the purchase of annuity.
In many cases, the annuitant is the owner of the annuity. In others, the annuitant may be a different contract holder, such as a surviving spouse.
Selecting Your Policy
The classic way of selecting a policy is through an individual insurance agent or a corporate agent working for an insurance company.
Life insurance agents are well-versed with new financial tools and can speed up your policy-buying process. To ensure you buy a suitable policy, connect with more than one agent, get quotes of different policies and then choose from the multiple options available.
With coronavirus propelling insurers to develop and present nuanced digital services to customers, you could also learn about different policies online. This will help you educate yourself about the pros and cons of the policy in detail and encourage you to take ownership of the terms and conditions more actively, without relying on an external agent’s assessment.
IRDAI suggests the amount of life insurance coverage you choose will depend on factors such as how many dependents you have, what kind of lifestyle you want to provide for your family, how much you need for your children’s education, what your investment needs are and what you can afford.
Check Claim Settlement Ratio
Once you have selected the insurance policy you wish to buy, check the claim settlement ratio (CSR) of your insurer. A CSR refers to the percentage of insurance claims settled by the insurance company compared to the number of claims received.
Knowing your insurer has a high CSR is important to ensure your beneficiaries can make a successful claim. Make sure the insurer settles claims in a timely manner before finalizing your policy.
Look for Riders
Most insurance companies offer riders that can help you increase the scope of your insurance plan, thereby ensuring a higher level of protection.
Check your policy-on-offer for extra benefits such as waiver of premium, accidental death benefit, income benefit and permanent or partial disability rider, among others. Riders are always worth considering when they increase extra coverage, provide flexibility or give tax benefits.
You may need to shell out extra money for a rider, which ideally should be communicated by the insurer ahead of buying the policy.
Prepare for Your Medical Examination
To make sure you have provided the correct details in your insurance documents submitted to the insurance company, a simple medical test is mandatory.
These tests look at complete blood count, fasting plasma glucose, cholesterol levels, HIV I and II and haemoglobin, among other measurements. It can help determine your overall health, and will help the insurance company suggest the best plan for you.
Buy the Policy
Once all the checks are in place, you can go ahead and buy the policy. Setting a monthly installment plan to pay your insurance premiums will make your life easier and help you plan your finances better. Insurance policy premiums can also be paid as a lump sum amount and may help you get an annual discount depending on the terms and conditions of your policy and the insurance company.
Making an online payment is a good mode of payment. This will help you keep a record of your premiums paid.
Dos and Don’ts When Taking a Life Cover
At the Time of Purchase
Compare Your Policy
If you buy an insurance policy from an agent, it’s important to make sure the agent is an IRDAI licence holder.
Seth of Edelweiss Tokio Life Insurance recommends consulting an advisor to understand the complete details of what you are purchasing, including exclusions and exceptions. He suggests you also leverage information readily accessible online and compare products available in the market with the help of aggregators.
Assess all documentation, such as the policy brochure or the prospectus, before buying the policy. Knowing what the policy covers and does not cover is crucial. Make sure you understand the terms and conditions of a claims settlement.
Policy jargon requires a keen eye.
Ask questions about complex insurance words that you don’t comprehend. Know policy details, such as whether it is a single premium or regular premium policy, the premium payment frequency, and ways to make the premium payment.
Pay Your Premium on Time
It’s important to pay your premium on time. Any miss or delay can result in a penalty. It may also result in discontinuation of the policy, and you’d lose all previous premiums paid.
Documentation Must Be Handy
Keep a copy of the completed proposal form you sign and any declarations and terms. You’ll want quick access to your documents if there’s ever a dispute about your policy. Keep an online document as well as an offline one.
Keep Family Members Informed
Your beneficiaries should know about your life insurance policy in case they need to make a claim. Communicate the details of your policy and what claims can be made.