After standard regular health insurance and COVID-specific covers, you will get to buy an insurance regulator-mandated standard term insurance policy from January 1, 2021.
The Insurance Regulatory and Development Authority of India (IRDAI) has come up with a standard term insurance plan that will have to be mandatorily offered by all life insurers. They will have to start selling these policies, to be named Saral Jeevan Bima and preceded by the life insurer’s name, on or before January 1, 2021.
This is in line with IRDAI chief Subhash Khuntia’s announcement earlier on the launch of such plans.
What will it offer?
The policy will be offered to individuals between 18 and 65 years of age, with the policy tenure ranging from five to 40 years. The minimum sum assured that you can opt for is ₹5,00,000, while the maximum is ₹25,00,000. However, insurers can choose to offer higher sums assured, provided the Saral Jeevan Bima policy wordings are retained.
You can choose from regular premium paying terms, limited paying periods of five or 10 years and single premium payments. The premiums can be paid in monthly, half-yearly and annual frequencies in the case of regular and limited pay policies. Death benefit will be the highest of ten times the annualised premium, 105 per cent of all premiums paid until death and the absolute amount assured to be paid on the policyholder’s death.
For single premium policies, the death benefit to be paid out will be the higher of 125 per cent single premium and absolute amount assured to be paid on death. Insurers are permitted to offer two riders – accident and permanent disability benefit options – for additional premium.
The cover will come with a waiting period of 45 days from policy issuance – only death claim due to accident will be payable during this period. In case the death occurred due to other reasons, 100 per cent of the premium, excluding taxes, if any, will be paid out to the dependents.
Will other terms plan not work?
The demand for pure protection term insurance has grown over the years. A term plan is the purest and simplest of all insurance policies. It gives your heirs a lumpsum amount after your death and thereby provides crucial financial support after you’re gone. Unlike traditional endowment plans, term covers do not offer any return on capital if you survive the policy period. Hence, the premiums of term plans are also low.
But multiple term plans in the market can cause confusion. “There are many term products in the market with varying terms and conditions. Customers who cannot devote adequate time and energy to make informed choices find it difficult to select the right product,” the IRDAI said, explaining the rationale behind introducing a standard term product structure.
The insurance regulator believes that a standard product will reduce mis-selling. “…will make it easier for the customers to make an informed choice, enhance the trust between the insurers and the insured, and reduce mis-selling as well as potential disputes at the time of claim settlement,” IRDAI said.
While it has laid out features and policy wordings that will be uniform, life insurers will determine premiums, as in case of standard health insurance plan Arogya Sanjeevani, Corona Kavach and Corona Rakshak standard policies. The pricing will depend on factors such as expected customer segment and sum assured and will be as approved by the regulator,” says Bharat Kalsi, Chief Financial Officer, Bajaj Allianz Life.
Is the standard term plan any good?
The uniformity in features and policy wordings will aid easy purchase of term plans, believe experts. “For first-time buyers of life insurance, the plan will be a boon. It will have the same features, benefits, inclusions and exclusions across all life insurers though the prices may differ,” says Santosh Agarwal, Chief Business Officer, Life Insurance, Policybazaar.com.
You will have to wait and watch for premiums that insurers come up with. Since IRDAI has left premium determination to insurers as per their board-approved policy, your age, income and health history are likely to be taken into account. Like in the case of most term policies, they could also come up with smoker and non-smoker rates, where the latter is far cheaper.
Fewer exclusions and clear definition of waiting period are a plus. "The death benefit seems to be more beneficial since it takes care of livelihood protection policies (LPP). Besides, the exclusion is only suicide (in the first year),” says Saroj Kanta Satapathy, Chief Operating Officer, JB Boda Insurance and Reinsurance Brokers.
Unlike health insurance policies, pure protection, regular term insurance policies are fairly simple products. Policyholders pay the premiums and in case of death, the insurer hands out the sum assured to their family members.
Life insurers have, over the years, indeed introduced newer features such as staggered claim pay-outs, lump-sum plus staggered pay-outs and inflation-linked increasing pay-outs, besides riders. This might have complicated the choices for some. However, insurers continue to offer simple term products that hand over the sum assured to nominees after the policyholder’s death.
Therefore, compared to health policies with uniform features and clauses, which helped reduce ambiguities, a standard term plan’s utility will be limited. However, if you are a first-time buyer, this product will help you make an anxiety-free start as features will be same across all life insurers. Uniform wordings and exclusions will leave little scope for disputes in future.
Once the products are launched, you need to choose your insurer based on the premiums and, more importantly, the claim settlement track record.
If you are looking at a high-value term cover, specifically compare the companies’ claims paid record in terms of benefit amount settled