Low-Cost Term Plans With Smaller Sum Assured Offer Greater Value For Money

Thanks to a price-sensitive Indian market, there is more need for affordable, short-duration plans with smaller sum-assured options, to address the term insurance gap in India, according to a recent press statement. 

“Thus, low-cost term insurance can significantly expand consumer outreach, especially amongst individuals aged 30-50. Usually, most insurers are not able to reach this segment as the ticket size is usually low and the cost of issuance is very high. An easy-to-understand term insurance, where the premiums are less expensive can be a disruptor,” says the press statement. 

The 30-50 demographic, which includes young professionals and middle-aged individuals, especially with annual incomes of Rs 10-15 lakh, often faces financial challenges that limit their ability to purchase traditional insurance products. Young working professionals can protect their spouse or parents, whereas newly married couples can ensure the dependents’ financial future with term insurance policies. “People who are single parents and small business owners can also benefit from low-cost term insurance and insurers can address the specific needs of these underserved segments,” adds the press statement. 

Understanding Term Insurance: To begin with, there is a need to understand the concept of term insurance. Term insurance is a type of life insurance policy that offers financial protection to one’s loved ones in the event of the policyholder’s untimely death. It works by providing a lump sum payout to the beneficiaries/ family upon the demise, which can be used to cover expenses such as education, mortgage payments, or living costs. The beneficiaries receive the death benefit if one passes away during the policy term, hence, term life does not build cash value like whole life insurance.

According to the press statement, amongst all insurance products available today, a term plan is one of the most crucial, as it provides a very high sum assured amount for the family, in case the policyholder passes away untimely. Despite its importance, term insurance penetration in India remains low due to two main reasons. First, many people assume they are unlikely to face an untimely death, which makes them understand term insurance premiums as unnecessary. Second, the regular term insurance plans, where the coverage usually ranges between Rs 70 Lakh to Rs 1 crore, are also for individuals who can afford that amount for protection plans. There is a significant set of customers who cannot afford such long-term plans.

The insurance industry today is undergoing a significant transformation, driven by evolving consumer behaviour, regulatory changes, and emerging health and life risks. The Insurance Regulatory Development Authority of India (Irdai) recently urged insurance companies to develop strategies for making insurance more affordable by lowering premium costs, utilizing InsurTech for greater efficiency, and expanding distribution channels. In the case of term insurance too, reducing the cost of premiums and using technology for wider distribution is essential for improving its consumer outreach.

Unlike other insurance products, term insurance does not include a savings or investment component. This allows insurers to offer more competitive premiums, as they are not burdened with the costs associated with managing investment funds. RenewBuy recently launched RB Suraksha, where the premiums start at Rs 5500, also offering wellness benefits. The plan has been introduced to reach out to the missing middle who need such products but cannot afford them.

What Can Insurance Companies Do: Insurance companies can further integrate advanced technologies, driven by artificial intelligence/machine learning AI/ML, to enhance underwriting processes and consumer experiences, like personalized recommendations and faster claims processing. 

According to the press statement, as the government, insurance companies, InsurTech, and Irdai are working together to increase insurance penetration in the country, low-cost term insurance could be a powerful way to boost life insurance adoption.