Saral Jeevan Bima is simple, but the cover on offer isn’t enough

Published in Livemint.

If you are looking to buy a pure term life insurance cover, you will soon be able to choose simply on the basis of your preferred brand and the premium or price. Making it simpler for individuals to buy a term insurance policy, the Insurance Regulatory and Development Authority of India (Irdai) has come up with guidelines for a “standard” product—Saral Jeevan Bima—specifying the terms and conditions, benefits, and features that life insurance companies must include. This means that you will get the same product across insurers, and won’t have to analyze or understand the variations between different plans.

All life insurers must launch the product by 1 January 2021. The product guidelines mention that insurers should offer the product without restrictions on gender, place of residence, travel, occupation, or educational qualifications. “These conditions make it difficult for insurers to reject an application,” said Santosh Agarwal, chief business officer, life insurance, Policybazaar.com, an online marketplace for insurance. Agarwal expects the premiums of Saral Jeevan Bima to be higher than that of other term plans as it is more inclusive and removes several restrictions.

We decode the product for you.

Features and benefits

Saral Jeevan Bima is a plain-vanilla term plan—the policyholder pays the premiums through the term and in case of death before the term gets over, the insurer pays the sum assured to the beneficiary. Insurers will not be liable for a payout if the policyholder dies within 45 days of taking the policy except in case of accident.

The product will have no exclusions, except suicide by the policyholder. Exclusions refer to the conditions or risks that an insurer does not provide coverage for. However, the suicide exclusion will be applicable only for the first year, said Abhishek Bondia, managing director and principal officer, SecureNow.in, an insurance broker.

According to IRDAI’s circular, “the product will make it easier for the customers to make an informed choice, enhance the trust between the insurers and the insured, and reduce mis-selling as well as potential disputes at the time of claim settlement.”

According to Irdai guidelines, it will be offered to individuals between 18 and 65 years of age. The maximum age at maturity is 70 years, which means when the policyholder reaches the age, the plan will automatically terminate. The policy term can be between five and 40 years.

The regulator has suggested a minimum and maximum sum assured of 5 lakh and 25 lakh, respectively. However, insurers are free to offer a higher sum assured, albeit without changing the terms and conditions. It will also come with different premium paying options.

Insurers can only offer two riders with this policy—accident benefit and permanent disability.

Low sum assured

One of the shortcomings of the product is the level of sum assured. The maximum sum assured of 25 lakh is low, according to insurance experts.

“The first question is who will buy this policy? Most people, in my experience, opt for the maximum cover they can get, which is in the range of 20 times their annual income,” said Mahavir Chopra, founder, Beshak.org, an independent research platform for insurance buyers. He gave an example of a person earning 3 lakh a year who should be able to get a sum assured up to 60 lakh. Typically, insurers don’t offer term plans to those earning below 3 lakh.

Financial planners recommend a life cover of at least 10 times your annual salary.

According to industry experts, insurers may not offer a higher cover in Saral Jeevan Bima as it would then compete with their existing offerings. “The regulator has come up with a standard product in health insurance called Arogya Sanjeevani. Not many insurers push it,” said an executive with an insurance intermediary, who did not wish to be named. He added that those not aware of the standard term plan may just be sold the insurer’s flagship policy.

How do you choose?

For buyers, it ultimately comes down to the brand of their choice and premiums. There are other parameters to look at such as solvency and claims settlement ratios of the company but these can be difficult to comprehend.

Solvency ratio of an insurer points at the health of a company and its ability to meet its obligations, but it can’t be relied upon solely for the purpose. Claims settlement ratio is the percentage of claims paid of the total claims received. However, the ratio changes with the size of the insurer. Smaller and larger companies that reject the same number of claims may have a different claims ratio. A higher claims settlement ratio generally means that getting a claim processed is easier.

Saral Jeevan Bima targets the masses across all income groups. But if you want to buy a term plan for a sum assured higher than 25 lakh, you may need to look at other products from insurers. Also, remember that insurers usually price higher sums assured at more competitive rates as there are lower claims from policyholders who have high income.

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