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COVID impact: Taking a term insurance policy has become costly and tedious

As insurers tighten their underwriting norms, those who are not graduates could find it tougher to get a term life insurance policy. Similar could be the case for those who draw an annual income of less than Rs 5 lakh

December 14, 2021 / 10:47 AM IST


Term insurance premiums are set to rise, starting this month. But if you plan to buy a term insurance policy now, you need to understand the changes, other than just higher premiums.

“Some companies are looking at income levels of more than Rs 5 lakh for salaried people and over Rs 7 lakh for non-salaried persons. A few companies are looking to focus only on such profiles and are completely setting aside profiles that don’t fit into these criteria. However, it varies from company to company,” says Naval Goel, CEO and Founder, PolicyX, an insurance broking firm.

Also read: Term insurance premiums are set to rise from December: Here’s what you should do

Income, educational qualification criteria get stringent

Those who are not graduates could find it tougher to get a term life insurance policy issued in the future. Similar could be the case for those who draw an annual income of less than Rs 5 lakh. “Life insurance companies have also analysed claims across geographies and certain PIN codes associated with higher claims could fall out of favour,” adds a senior official at an insurance broking firm.

Industry watchers say the genesis lies in some reinsurers’ decision to tighten their risk management processes. “Life insurers have significantly tightened their underwriting guidelines. This is mainly due to pressure from reinsurers, as a result of higher mortality losses last year. Insurers have become stricter on both medical and financial underwriting fronts,” explains Ankit Agrawal, CEO and Founder, InsuranceDekho, an insurance aggregator portal.

Also read: Buying a life insurance policy? Link it to married women’s property act to pass on benefits smoothly

Underwriting refers to the process of insurers assessing the risk of issuing a policy to you and calculating the premium accordingly. If you buy a high-value cover – sum insured of over Rs 1 crore – the paperwork will be more cumbersome. “Documentation requirements have become more stringent in terms of salary slips, bank statements asked for,” he says.

Pay a price for unhealthy lifestyle

Then, they have adopted other measures too. “Earlier, there was a large proportion of cases that did not require physical medical tests. That is not the case anymore. The rejection rate has increased in both medical and financial aspects. In cases involving pre-existing diseases, the counteroffer (additional premium) is very expensive, leading to high rates of rejection,” he adds.

Put simply, if you have existing illnesses such as diabetes or hypertension while buying the policy, the loading – or extra premium – that the insurer will charge could be prohibitively high. “Earlier, as per our experience, the underwriting team would assess the quality of a case on a cumulative basis, while now, the case gets rejected even if a single criterion is not met,” he adds.

Also read: Declaring all pre-existing diseases or your health insurer will reject claims

On the other hand, if you follow a healthy lifestyle, you stand to benefit. “Insurance companies scrutinise the case depending on the nature of the disease. If a person has a disease like hypertension, but maintains a healthy lifestyle and the disease is under control, then the insurance company may issue him/her a policy,” adds Goel.

If your health parameters are temporarily affected, the insurer could defer policy issuance. For instance, if you are overweight, the Body Mass Index (BMI) is off the mark, but you are in a position to remedy the situation, you could still have a chance. “It can also be denied if a person has some serious illness or be issued with extra premium,” he says.

Preeti Kulkarni
Preeti Kulkarni is a financial journalist with over 13 years of experience. Based in Mumbai, she covers the personal finance beat for Moneycontrol. She focusses primarily on insurance, banking, taxation and financial planning
first published: Dec 14, 2021 10:47 am