Should you opt for bite-sized term plan?

Sensing the need for lower cost insurance covers, life insurance companies are offering micro term life plans. These are also easier to buy as some are available through mobile wallets. But since the premium is low, the cover or sum assured is also. Hence, while these plans may be affordable due, will the low life cover they offer suffice? Is it possible to add to the life cover at a later stage? DNA Money spoke to experts to find out how the micro term plans work and for whom they are suitable?

Features of micro term plans

The latest to offer a micro term plan is Aegon Life Insurance, which launched its Aegon Life Group Term Plus Plan, earlier this month, jointly with MobiKwik. The plan can be purchased only through MobiKwik app. Earlier, in February, ICICI Prudential Life Insurance had also launched a micro term plan jointly with MobiKwik.

Vineet Arora, MD and CEO, Aegon Life Insurance says, “Metrics across various financial products indicate the need for more innovative solutions to target new-age customers. We believe that the time is ripe for the sachet model in insurance. This product aims to provide such services to today’s digitally savvy customers and to serve a huge segment through customised bite-sized products.”

Prior to these, IndiaFirst Life Insurance had launched its micro-insurance product called “Insurance Khata” in November 2017. This was targetted at the informal sector and those from the agricultural sector with seasonal incomes.  

Suitable for low, middle-income group

The sum assured in both Aegon Life’s and ICICI Prudential Life’s products ranges from Rs 1 to 2 lakh and can be bought at monthly premiums as low as Rs 20 every month (for a Rs 1 lakh cover), which works out to Rs 240 per year. The plan is available to anyone between 18 and 50 years.

To purchase a life cover worth Rs 2 lakh, the maximum amount of monthly premium charged is Rs 40 for a policy tenure of 10 years.  

In comparison, for a regular term plan the minimum sum assured is Rs 10 lakh, and the premium for a 30-year old non-smoker male would work out to approximately Rs 3,000 per year. 

Madhu Burugupalli, head products, ICICI Prudential Life Insurance says, “ICICI Shubh Raksha is a pure protection group micro-insurance product. This is primarily targeted at low and middle-income customers. It offers customers a life cover at a very affordable premium. The delivery mechanism is simple, paperless and the policy is issued on a real-time basis.”

Similar to standard term plans, the sum assured in these group term insurance policies cannot be increased after buying them. C S Sudheer, CEO and founder, IndianMoney.com explains, “No mandatory medical tests are required for group term insurance plans. Pre-existing conditions may also be covered. But it’s advisable to undergo medical tests before availing a standard term insurance plan.” 

While both Aegon and ICICI Prudential have opted to reach out to customers through the digital wallet system, IndiaFirst has tied up with Common Service Centres (CSC) across the country and Point of Sale (POS) agents.

Look and cancel option available

Micro-insurance products are designed in a way that customers would deem economical. Thus they could be seen as a “value for money” product. They have the same essential features as insurance plans sold online or offline. For example, these plans also come with a free-look period that lasts 15 days, thus, allowing customers to cancel the product if they do not find it useful enough or suited to their needs.

How much cover do you need?

It is difficult to arrive at the right amount of policy cover that would meet the needs of our loved ones, as it would mean taking into account future needs as well. Hence, how much will the sum assured of Rs 2 lakh suffice? Burugupalli says, “Group micro-insurance products act as a catalyst for bringing more individuals under the ambit of life insurance. For many families this could be a lifeline in case a tragedy befalls. Any individual who has taken any micro-loan can ensure that their family is not burdened by the loan in case of their demise. As the economic status of individuals improves, being familiar with the benefits and importance of life insurance, individuals are more likely to enhance their life cover in line with their increasing income levels.”

For instance, a young customer may opt for a low cover during the early years of their lives as it is affordable. But they have to buy separate policies if they want to buy an enhanced cover amount to secure their loved one’s future.

Such a product can also help in inculcating the habit of buying insurance for the purpose of protection as opposed to buying it only to avail tax benefits. Arora says, “Life insurance is a must have tool in the financial portfolio of every individual. However, in India, insurance policies are largely purchased to avail tax benefits. The intent is to inculcate the habit of buying insurance in India for the sole purpose of protection.”

IndiaFirst’s product allows for an increase in the sum assured, says Rushabh Gandhi, deputy CEO. “Insurance Khata is structured in a way that customer has the flexibility of adding to the base sum assured, that is, there is a scope of increasing the life cover as and when the customer has any surplus funds. Hence, a single insurance plan is enough,” he says.

TAKE INSURANCE AS PER YOUR NEEDS

• Micro term plans help bring those who have no protection under the ambit of insurance
   
• As these are group plans there is no need for medical test and premium is same irrespective of customer’s age
   
• The low sum assured may be insufficient and options to increase your cover are limited