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COVID-19 impact: Senior citizens struggle to buy term plans as underwriting gets stringent

Term insurance plans can be bought till the age of 65. Considering that physicals are now mandatory for senior citizens due to high Covid-19 death claims, products such as annuity and pension are being pitched to this category.

August 05, 2021 / 10:16 AM IST
Before the Covid pandemic, term plans were issued to senior citizens. But medical tests were done based on past illness history. Now, with the rise in death claims, especially among those above 60, insurers are turning away such customers. (Representative Image)

Before the Covid pandemic, term plans were issued to senior citizens. But medical tests were done based on past illness history. Now, with the rise in death claims, especially among those above 60, insurers are turning away such customers. (Representative Image)

Mahesh Naskar turns 60 in December 2021. While Naskar, who is a retired teacher in Kolkata, does have some mutual fund savings, he wanted to buy a term insurance plan for himself.

Since Covid-19 has led to online sales, Naskar was confident that he would be issued a policy since he does not have any history of medical issues. However, when he approached life insurers (five of them), he was told that any policy would be issued only after a detailed physical examination.

“I am fully vaccinated and was ready to share my medical records, which gave me a clean bill of health. But I was told that a policy would be issued only after I did a 'treadmill test' where I had to jog on that machine for 30 minutes. Citing Covid-19 I had suggested complete home-based check-ups but was immediately told that a policy cannot be issued,” he said.

Across India, life insurers have become cautious in issuing term plans due to the rise in Covid-19 death claims. These are pure protection plans that make pay-outs only in the event of the policyholder's death during the premium-paying term.

Before the Covid pandemic, term plans were issued to senior citizens. But medical tests were done based on past illness history. Now, with the rise in death claims, especially among those above 60, insurers are turning away such customers.

COVID-19 Vaccine

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A vaccine works by mimicking a natural infection. A vaccine not only induces immune response to protect people from any future COVID-19 infection, but also helps quickly build herd immunity to put an end to the pandemic. Herd immunity occurs when a sufficient percentage of a population becomes immune to a disease, making the spread of disease from person to person unlikely. The good news is that SARS-CoV-2 virus has been fairly stable, which increases the viability of a vaccine.

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What does it take to develop a vaccine of this kind?

Vaccine development is a long, complex process. Unlike drugs that are given to people with a diseased, vaccines are given to healthy people and also vulnerable sections such as children, pregnant women and the elderly. So rigorous tests are compulsory. History says that the fastest time it took to develop a vaccine is five years, but it usually takes double or sometimes triple that time.

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Consequently, no policy is being issued to senior citizens without detailed medical check-ups. Indeed, those in some age categories (60 years and above) are being nudged to buy other products.

And if one insurer rejects a policy proposal, others almost certainly will — even if customers are ready to share past medical data. Sanjana Pastakhia, a retired baker in Mumbai, told Moneycontrol that the moment she mentioned her age (she is 61), no life insurer was ready to issue a policy.

“Since my sister is my dependent, I thought it would be a good idea to buy a term plan so that she gets a lump sum benefit in case of any event. But I was told that policies are not being issued to older people for the time being,” she explained.

Surge in death claims

As per the RBI's financial stability report, life insurers received 22,205 Covid-19 death claims worth Rs 1,644 crore in FY21. While consolidated death claim numbers for Q1FY22 are not yet available, industry sources said that there is a 4X increase in the number of claims in this fiscal year owing to the second wave.

Term insurance plans can be bought till the age of 65 in India. Once a policy is purchased, coverage continues even till the age of 99 years. However, since the risk of death is higher as one grows older, insurers are growing cautious.

Life insurers are nudging senior citizens to opt for pension and annuity products to meet their retirement needs. This is on the basis of the mortality table data.

The mortality table indicates the probability of death of an individual before his/her next birthday. The older the person, the higher the probability.

What is the approach taken?

Insurers have tightened their underwriting for term policy sales. Industry sources said that policy issuance to senior citizens has been deferred amid the Covid-19 pandemic.

This is because senior citizens were the worst affected during the first and second wave of Covid-19.

In Mumbai, which is among the worst-hit districts in India due to Covid-19, a report said that of the 4,490 deaths between January and July 15 in the second wave, 25 percent or 1,142 were in the 60-69 age group.

To deal with the situation, insurers are either staying away from issuing policies or postponing issuance.

Moneycontrol had reported earlier on how HDFC Life Insurance was taking a calibrated approach in issuing term policies to keep costs under control and reduce price risks.

Vibha Padalkar, MD and CEO, HDFC Life, had told Moneycontrol recently that in a situation where it is not possible to conduct a physical (for certain age categories), then the insurer would be cautious.

The private life insurer carries out stringent underwriting, including financial underwriting, which involves checking past data from the Insurance Information Bureau of India and seeking income proof for the purchase of additional term plans. Medical tests are conducted for term plans to gauge a customer’s general health, which has been a challenge amid Covid-19.

“We can’t do home visits for everybody. In some cases, we need them to go and get a medical test. What we are saying is that we will defer writing a policy until maybe we are a little bit out of the woods on the pandemic front,” she had said earlier.

Insurers also said that underwriting is getting tougher for all age categories, even as senior citizens are being looked at with a closer lens.

Nudge towards retirement products

Karthik Raman, CMO and Head, Products, Ageas Federal Life Insurance, said that underwriting norms are getting more stringent on term plans for all applicants, irrespective of age.

“While there are non-medical limits, senior citizens do not fall under this category and would necessarily have to undergo medicals. In the event that they cannot go for medicals, it would be difficult for a company to issue a term plan. But they can evaluate non-term plans such as pension plans,” he added.

Indeed, instead of term plans that are meant to provide survival benefits to dependents, insurers are advising senior citizens to opt for retirement-linked products.

Sunil Sharma, President, Chief Actuary and Chief Risk Officer, Kotak Mahindra Life Insurance, said that senior citizens do not have any liabilities like home loans or car loans or any need for income replacement for dependents.

“Therefore, senior citizens do not need term assurance cover, but they need pensions or annuity products,” he added.

What can senior citizens do?

Customers like Naskar and Pastakhia may have to wait till Covid-19 cases drop. In case there is a third wave, sources say that life insurers would continue to stay away from term plans for the older population.

“Ideally, term plans should be bought by people in their 30s and 40s. While one is allowed to buy term insurance till the age of 65, insurers cannot afford to take risks on the books right now. Provisions have risen steeply and getting 60+ risks on the books is just not viable,” said the vice president of sales at a private life insurer.

M Saraswathy
M Saraswathy is a business journalist with 10 years of reporting experience. Based in Mumbai, she covers consumer durables, insurance, education and human resources beat for Moneycontrol.
first published: Aug 5, 2021 10:16 am