One Size Doesn’t Fit All

It is hard to miss the catchy TV commercial where actor Akshay Kumar dons the avatar of Yamraj 2.0. His message: why you should protect your family through insurance against uncertainties. While its humorous quotient cannot be ignored, the need to secure the future of the loved ones, with Rs 1 crore sum assured by spending a meagre Rs 680 per month, does leave an imprint on the viewer’s mind.

The ad promotes a standard term insurance plan, where a predetermined death benefit is provided to the policyholder’s family if the untoward happens. “The plan is a boon for first-time buyers who do not have knowledge of the product. It primarily caters to consumers falling under the lower-income group and for those who do not have uniform income proof. It is standard across insurers, and is easy to understand,” says Santosh Agarwal, Chief Business Officer, (Life Insurance), Policybazaar.com

Adding few riders for a comprehensive cover can take the monthly cost close to Rs 2000. While it appears to be a beneficial offer, in a country where per-capita monthly income stands at Rs 11,254, Rs 2000, or even Rs 680, can be a big thing. Hence, it is not surprising that insurance penetration stood at 3.7 per cent in 2018, as per the Insurance Regulatory and Development Authority of India (IRDAI).

Moreover, growing complexity of term plans with limited pay, staggered payout, return of premium and increasing cover, among others, make things confusing. To make things simpler, IRDAI asked insurers to offer a standard plan, which is called Saral Jeevan Bima, from January 1, 2021.

This will be similar to regular term plans, and pay a lump sum to the nominee in case of death during the term of the policy. However, simple features, limited riders, standard terms and conditions, and one exclusion, suicide, will help customers to make a confident choice. They will no longer be victims of mis-selling.

The mandatory sum assured ranges between  Rs 5 lakh and Rs 25 lakh, and makes it highly affordable, while removal of restrictions on occupation, gender and place of residence makes a majority eligible for it. Earlier, most insurance companies required customers to have income above Rs 3 lakh annually.

On Benefits

Initiated on the lines of health insurance plan—Arogya Sanjeevani—this will have the same features, benefits, inclusions, and exclusions across insurers. The pricing, however, may differ. Only two optional riders, permanent disability and accidental death benefits, are available. Anyone between 18 and 65 is eligible to buy it and the term will be from five to 40 years. It offers three payment options, regular, single and limited, for five and 10 years. It has a waiting period of 45 days, and during this time the policy only covers accidental death.

Who Buys?

Due to the simplicity of its structure, the plan will be ideal for first-time buyers. Besides, a low sum insured and limited rider options make it affordable. Saral Jeevan Bima is expected to stretch coverage of the insurance umbrella. “This is apt for anyone who does not possess any term plan. Moreover, it is beneficial for individuals who fall under the low-income segment. This will help boost consumers’ confidence, while investing in the term plan,” says Rakesh Goyal, Director, Probus Insurance, Insurtech Broking.

Who Avoids?

Those who can afford a term plan with a higher sum assured may not buy this one. Also, if you want a comprehensive plan, which offers cover for critical illnesses, premium waiver and income benefit, then the standard plan is of little use.

Calculating Premium

The basic factors in determining the premium include age, gender, and medical history. So, the earlier you buy the plan, the cheaper it will be. Generally, women pay a lesser premium than men, when other metrics for eligibility are the same. The same principle is followed here.

Things To Consider

You must compare what other insurers offer. You can reduce the premium by opting for annual payment. By opting for a limited payment term, you can further cut cost. It is a pure risk plan and there will be no maturity benefit. This plan is only for individuals. Do take into account  liabilities, and one-time expenses like child’s education and marriage. It is important to rightly disclose your medical history and lifestyle habits.

nirmala@outlookindia.com