Term insurance has been a recent development in India, as it was only introduced in the year 2009. Still, within a decade later, it has caught on with way more gusto than one would expect. However, there is still a lot of room for improvement as term plans are still treated as tax-saving tools, especially as the struggle to apportion savings becomes evident among middle income households. The importance of purchasing term insurance that overlooks a person’s financial status is gradually coming to the forefront. A look back at the evolution of term insurance in India will reveal fundamental flaws in the perception of a term cover and its role in a family’s financial portfolio.
Here’s where it started
Originally, the only form of life insurance policies available in the market were the money back covers and savings products. It was in 2009 that the first term insurance product – Aegon Religare I-Term entered the country, hoping to stir things up. Since then, the number of private sector insurance companies has increased manifold, and the policies offered by them are diverse and designed specifically for your needs. There was another wave in the year 2015 when term insurance picked up speed with prominent insurers such as HDFC Life, ICICI Prudential, SBI Life and Tata AIA starting to look at term cover in a serious manner. This was the time when term as a wholesome product was available in the market as it started catching the fancy of customers within a short time period.
Apart from renowned insurers, prominent insurance market places started to advertise term insurance with the aim to spread awareness amongst the people on the importance of term insurance.
It hardly comes as a surprise that in a span of a decade, the online term insurance category has witnessed immense growth in India. The large reach and transparent buying process, along with product innovation, have helped customers in buying online. While there was a view that the online medium has a lower cost as there may not be a distributor involved in between the insurance company and the policy buyer, that view has proved right, as the benefits are far higher. The benefits come in the form of self-disclosure, better risk assessment, and process automation, too. Term insurance is one such product category where online launch of products and competitive pricing has resulted in the product becoming popular with Internet-savvy policy buyers.
One of the main reasons for the increase in the popularity of term plans is the overall increase in awareness across the country about the importance and need of insurance as a protection measure for financial security. As per the Economic Survey for 2018, the insurance penetration in India has increased to 3.49 per cent, indicating more and more people are willing to invest in insurance related instruments, and since term plans are the easiest and cheapest form of life insurance tools available, individuals are increasingly choosing to opt for them. Gross premium collected by life insurance companies in India, as reported by a India Brand Equity Foundation report released earlier this year, has increased from Rs. 2.6 trillion in 2012 to Rs. 4.2 trillion in 2017, and reached an all-time high of Rs. 3.68 trillion in 2018, and is showing no signs of slowing down.
Term insurance market gains traction
Today, some of the best selection of brands and prices for every segment are being sold in the market with best term products for the salaried class, high net value individuals and self-employed professionals.
Surely, the COVID-19 pandemic has awakened public awareness of the need for term life insurance amongst the people. With the world almost shut down and media reports filled with stories of tragic loss of life, people are increasingly aware that a long life is not something they can take for granted. Reports suggest that online sales of term life insurance have increased by 40 per cent in the last 3.5 months. Though the average size of term insurance has gone down during the COVID-19 situation with the current average shifting from Rs. 93 Lakh to Rs. 87 Lakh. This is particularly because for a cover more with more than Rs 1.5 crore sum assured one needs to have a mandatory medical test done; however, for a cover of less than Rs 1.5 crore sum assured, the policy can be issued through tele-medical check-up.
Talking about the average premium of term plans, while the average premium last year was Rs. 25,500 it has come down to Rs. 22,000 the current year. The basic reason for decline in term insurance premium is affordability. Until last year, most people used to buy term plans with limited pay option under which the insured used to pay premiums only for 10 -15 years but used to get cover until 40 years. However, this year, following pay-cuts and job losses, most people are going for cover with regular pay where they pay premium until the policy term.
A good term insurance plan helps you protect yourself even better by covering yourself against most important 3Ds of your life that are Death, Disease and Disability. Term insurance plan can be bought at a very nominal cost. The payout can be customised as per your needs, whether it be a lump sum payout or staggered payout in monthly instalments. It is further beneficial as the premium you pay towards it can help you avail a deduction under Income Tax Laws. With term insurance prices set to rise anytime soon, it is best to buy a term plan at the earliest as the earlier you buy the lesser you pay.(The writer is CBO-Life Insurance, Policybazaar.com)