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On demand, in demand: Term insurance to cover multiple needs

Policyholders are lapping up pure protection covers that offer allied features like protection against inflation, salary replacement, return of premium, maturity amount in installments, etc.

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Term plans aren't the plain vanilla term insurance covers anymore. With increasing buyer interest in term insurance products, life insurance companies have been offering allied features to woo policyholders.

There are options that offer the premium back, protect against inflation by increasing the sum assured at intervals and also those which pay maturity amount in installments instead of one lumpsum benefit.

No wonder then that the share of pure protection covers – which pay the nominee the pre-fixed amount in case the policyholder dies – has steeply risen to 45% of the total life insurance offerings in 2015, as against 27% notched in 2014.

Now that the insurance regulator has proposed to offer a higher commission for agents selling pure protection covers instead of products that bundle savings and protection, under the draft guidelines titled "Payment of commission or remuneration or reward to insurance agents and insurance intermediaries, regulations, 2016," we decided to gauge which options in the renewed term plans are catching investors' fancy.

We found from a quick survey of select life insurance companies that though offline term insurance is a major pie of their customers, increasing number of people are opting for online term insurance plans to benefit from lower prices.

But they don't peg the decisions on prices alone. "Price does play an important role in the decision making but it is not the only criteria any more. Customers understand the importance of benefits, ease of buying and claims experience of the company," says Shamik Banerjee, chief marketing officer at Aegon Life Insurance.

Additional features too drive their decisions. "Given changes in life expectancy, people are looking for longer coverage and also want to enhance cover through riders," says Nilesh Parmar, chief operating officer, Edelweiss Tokio Life Insurance.

He adds that customers are doing much more research before buying a term plan, aided by internet. However, that isn't increasing the turnaround time for purchase. "The decision making (for customers) has become much faster," Parmar observes.

Online vs offline term plan
While agents need to be encouraged to sell term plans, they also have a tough fight with price differential between offline and online term plans.

A significant number of new term plan buyers are hooking onto the online platform.

Sujoy Manna, vice president – products at HDFC Life Insurance, elucidates, "The market has expanded. So we cannot compare the percentage of people opting for online term plan now. But due to the significant difference in prices, people are opting for online term insurance product. These are individuals, mostly salaried individuals -- educated, who are aware of term insurance, internet savvy and hence, compare products and they disclose more information."internet savvy and hence, compare products and they disclose more information."

But, cheaper term plan doesn't mean there aren't any takers for agent and intermediary-driven term plan. "Offline term continues to have a larger share but online term insurance is gaining momentum as it is approximately 30% more cost effective compared to offline premium rates," says Anup Rau, CEO, Reliance Life Insurance.

Internet penetration and offerings in select cities are some reasons why the offline term plan would still survive. "Of those online buyers, a majority prefer to choose term insurance plans as they are easy to understand and buy. However, the number of online term insurance buyers is still pretty low when compared with term policies sold or bought online, because of reasons like lack of internet penetration and awareness on term insurance plans etc.," says Subrat Mohanty, head of marketing at Bajaj Allianz Life Insurance.

Increasing sum assured
When it comes to longer-term investments, inflation eats up a big pie of one's money. To protect the sum assured from proving insufficient years later due to inflation, options that increase the sum assured over a period are being preferred.

Few companies offer these as riders currently. But similar plans which increase sum assured at various life events are available. "Options to increase cover in term insurance are meant for those who want increase the protection cover at different life stages like marriage, child birth etc.," says Mohanty.

Some life insurers such as Edelweiss Tokio Life have kept away from offering some of these add-on covers. Parmar says, "These add to the cost of the product, and hence, are not very popular."

Return of premium
The habit of expecting something in return for every investment one makes is hard to exterminate. So, for those who survive beyond the term insurance policy tenure, term insurance would seem to be a wasteful expenditure. To fix this, an option of return on premium was initiated by select insurers.

Such feature helps the policyholder get the premium back at the end of the tenure. Even though they are costly, the return on premium riders are being opted by individuals. "These plans, which give the advantage of return on premium, are found to be growing steadily in tier II towns," points Banerjee.

Staggered maturity payment
When it comes to maturity amount or death benefit (when policyholder dies), the option of staggered payments over 5-10 years instead of lumpsum benefits is being opted for.

"Policyholders are opting for a mix of income (staggered maturity payment) and lumpsum. About 22% of policies sold for income options. If the head of the family dies and the nominee receives Rs 1 crore worth of death benefit amount, he wouldn't know what to do with the money, how to invest so that it lasts 10-15 years as an income stream. Hence, the need for the income and income plus options," says Manna of HDFC Life.

Though lower awareness levels would result in few opting for this feature, the numbers would rise in the future say insurers.

"Whilst number of customers opting for this option is still only about 10-15%, we have seen a steady increase in this over the past few months," says Parmar of Edelweiss Tokio Life.

Term
Tough term insurance covers are available for a period of as low as 5-10 years, life insurers have observed that policyholders are often opting for the higher end.

Rau says, "At Reliance Life, more than 85% of the online protection policies are bought with a policy term of 25 years or more."

Typically, one should seek protection based on the retirement age. However, because one can lock-in at lower premium if they buy insurance at younger age, the tendency has been to opt for longest possible tenure.

"Going by the rulebook, policy term should be a function of the period an individual intends to work in gainful employment. However, people are preferring longest possible terms, that are being offered under the protection plans," Banerjee adds.

Salary replacement
Though sabbatical insurance market is in its nascent stage in India, there are covers available to protect one from loss of salary due to disability, accident, etc. Insurers offering them are seeing calls trickle in. "We have seen an increasing interest among customers seeking salary replacement plans as this option takes away the uncertainty from the minds of the beneficiaries. Increasing benefit option (5% increase in the insured amount every year) under a salary replacement plan also addresses inflation and rising cost of living," as per Banerjee.

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