Explained: No need for wet signatures, you can now buy term insurance policy online

The Insurance Regulatory and Development Authority of India (IRDAI) has allowed insurance companies to seek consent to a proposal for term plans through the one-time password (OTP) method, doing away with the wet-signature one, in the wake of COVID-19.

Term policies are those which pay the insured amount, or sum assured, only upon the policyholder’s death during the coverage period. It doesn’t offer survival benefits like other life insurance products.

With the IRDAI move, a term insurance policy can now be issued completely online. Issuing physical policies has proved to be a challenge for insurers during COVID times.

Moneycontrol explains to you how term plans will go fully online.

Proposal form

This is the first step in an electronic policy. This form contains details of the insurance policy as well as customer information. Once a customer agrees to purchase a policy, the proposal form will be emailed to him.

He/she has to send the consent to the proposal by clicking on the validation link and validating the OTP. IRDAI has said that insurers have to maintain verifiable evidence showing that the customer has given consent.

No premium or policy amount can be collected till the time the customer has clicked on the proposal form email and consented to the policy. This will be applicable only to pure risk or term insurance plans and is valid till December 31, 2020. It could be extended to other products based on the response.

Policy issuance

Once the proposal form is sent back with the consent via email, the policy premium will have to be paid. When the premium is paid, the insurance policy comes into force.

The policy documents will then be sent to the customer via email. This policy will be issued electronically through an e-insurance account. Earlier, IRDAI had mandated the issuance of a physical policy even if e-insurance was opted by a customer. Now, that requirement has been done away with.

Even in the case of e-insurance policies, the 30-day free-look period will be applicable. The exemptions for issuing fully electronic policies is valid for FY21, after which it will be reviewed.

Setting up an e-insurance account

The electronic policy will be stored in an e-insurance account. E-Insurance Account is a platform offered to policyholders to store all their policies in a digital format. This is maintained by an insurance repository, which stores it in an electronic format. In addition, the repository acts as a single stop for several policy service requirements.

Each e-Insurance Account will have a unique account number, login ID and password.

This service was launched in 2013 by former Finance Minister P Chidambaram, and is touted as the first such service in the world. It is estimated that insurers could save almost Rs 100 crore annually from this initiative.

However, less than 5 million policies of the total 450 million have been being digitised. Insurers said that this was because IRDAI had insisted on physical policies along with electronic policies, leading to a rise in costs for companies.