Saral Jeevan Bima will have lower entry barriers, but may not be cheaper

The type of insurance policy sold most widely in India is the insurance-cum-investment plan. Term cover began to catch on only in the past few years. Insurance penetration in India is low. And even those who have insurance policies are grossly under-insured. Hence, high expectations are pegged to the Saral Jeevan Bima (SJB), the standard term insurance cover slated to be launched on Janua­ry 1, and whose features have been decided by the Insurance Regulatory and Development Authority of India (IRDAI).

Simplicity is its forte

The SJB is a simple and standardised product that customers will be able to comprehend easily. “When a policy is feature-heavy, it becomes more interesting and attractive for customers. However, it also becomes more puzzling for them,” says Rushabh Gandhi, deputy chief executive officer (CEO), IndiaFirst Life Insurance.

The sum assured in the SJB starts at Rs 5 lakh. “For most companies offering retail term insurance today, the minimum sum insured is much higher. The lower minimum sum insured will enable more people to buy term insurance and will help enhance insurance penetration,” says Gandhi. Adds Rakesh Goyal, director, Probus Insurance, an insure-tech broking company: “In a policy whose terms and conditions are standardised, the chances of rejection are likely to be lower.”  

Lenient underwriting

The term policies sold today are restrictive in nature. The buyer, for instance, has to submit proof of income. Salaried employees can submit three months’ salary slips. But the self-employed have to submit their income-tax return and computation of income (a statement of income, certified by a chartered accountant). “Only a small section of the population files income-tax returns in India. Those who don’t are unable to buy term insurance,” says Santosh Agarwal, chief business officer (life insurance), Policybazaar.com. Many companies have a minimum income criterion of Rs 3 lakh. Some stipulate that the buyer must be educated up to Class XII or even be a graduate. Many self-employed people are unable to fulfil these criteria. In the SJB, the underwriting framework is expected to be simpler and the entry barriers lower.

Coverage ends at 70

In the SJB, coverage is allowed only up to 70 years of age. Many term policies today offer coverage up to 85, and some even up to 100.  

The SJB also has a 45-day waiting period. If death happens within this period, there will be no payout, except if it is due to an accident. Existing term policies have zero waiting period.

Also, as Goyal points out, many prospective customers may regard the Rs 25-lakh upper limit on sum insured to be inadequate.

SJB may not be cheaper

While the SJB will be more accessible, it may not necessarily be cheaper. According to experts, that is bound to be the case when economically weaker sections are included in the insured pool. Income, they say, is among the key determinants of mortality experience.

The SJB may also be slightly expensive because of the underwriting costs that the insurer has to bear. If Rs 1-crore cover purchased through a retail term policy costs Rs X, an SJB policy offering Rs 5 lakh cover may not cost one-twentieth of it. It may cost slightly more than that. That is because even while offering a low-ticket policy, the insurer has to incur similar processing costs as he does in a bigger-ticket term cover.

While exact prices are not available yet, experts say the variation between the lowest- and the highest-cost policies is likely to be higher in the SJB than in the term policies available today (around 3x in the former versus 2x in the latter). Finally, do try to take advantage of the discounts for purchasing online, which are expected to be as high as 20 per cent in some policies.