Prospective buyers or even existing policyholders should be abreast of developments in insurance, which constantly improves on service aspects. Even in term insurance — a plain vanilla product — one can always improve the protection feature, payoff experience or expand the target population that gains from the product. Term insurance is essentially a staggered purchase through life’s stages, allowing for newer features to be bought into. For new buyers, starting with a comprehensive product that includes all relevant improvements in the first product is a prudent choice.
Zero cost term insurance
The primary customer pushback in term insurance is that premiums paid will not be returned unless in the event of an unfortunate incident. While this is supposed to be ideal and even a preferable outcome, the costs were prohibitive to allay this concern, previously, by way of return of premium policies. These policies’ annualised premium was twice the normal term insurance premium.
Even a cursory understanding implies that premiums charged for these polices were, financially viewed, inferior to normal policies. The extra amount paid to secure return of premium can, alternatively, be locked into a mild-to-moderate risk instrument and still come on top compared to investing in return of premium policies.
In the last one year, zero cost term insurance policies have gained prominence to address the ‘premium return’ pushback. These are priced similar to normal policies and the return of premium feature (ex of GST) is at zero cost, which nullifies the argument against return of premium policies. But the catch is that these must be surrendered in a specific window (55-65 years of age) and the policy term must range 30-40 years.
These conditions are specific to each policy. HDFC Life’s Click 2 Protect allows for a policy surrender from the age of 68 and ICICI Prudential’s iProtect allows for policy surrender from 63 years of age. The ideal use case for the plan is to have all financial responsibilities wrapped up by that time and surrender the policy offering financial protection. The plans are at a yearly premium of ₹13,000-₹14,000 for a ₹1-crore policy, essentially the same as a normal policy but half the cost of a return of premium policy.
Term insurance for non-working spouse
Term insurance for non-working spouses is still evolving. Earlier, the sum insured available for homemakers was limited to only half of the sum insured of the working spouse. But as a small improvement, term insurance for a non-working spouse can be purchased independently, without limits on sum insured. It being a financial protection product, the annual household income is still a relevant parameter (upwards of ₹2 lakh per annum). But the humble start should be welcome.
Homemakers can now purchase a term plan for up to ₹1 crore and beyond (depending on household income) independently and not as a tag-along with spouse’s term insurance. The pricing is similar to a regular income generating policyholders premium of ₹13,000-₹14,000 for a ₹1-crore policy for men, and ₹11,000-₹13,000 for women. One can only hope that the monetary equivalent of a non-working spouse’s contribution is protected without accounting for spouse’s annual income in the future.
Term insurance for diabetics
Term insurance for persons already having diabetes is possible, but the hurdle rate is higher in most policies. The HbA1c levels should well-regulated in prior six months, there should be no major co-morbidities or adverse lifestyle practices. But with higher prevalence, insurers are offering policies for diabetics.
Bajaj Allianz recently launched a term insurance for diabetics which, although limited to a maximum age of 56 years, has specific features. Upon control of HbA1c levels or better wellness metrics, there is a scope for discount on premiums. As the policy comes with a pre-defined limit of under 8 per cent HbA1c levels, the medical test will have factored the condition. The pricing will be on the higher end. Compared to a cost of ₹12,000 for a ₹1-crore policy for a 31-year-old, this plan may cost ₹25,000-₹28,000 for a ₹1-crore policy. Other insurers may offer term plans for diabetics but the individual hurdle rate in the form of medical tests and other regulations may vary significantly from insurer to insurer.
These features are a beneficial step forward for the relevant customers and should be considered for a well-rounded protection instrument.