Edelweiss Tokio Life Insurance Co. Ltd has started India’s first conventional term insurance plan called Saral Jeevan Bima, which is directed at first-time buyers and those who may not have easy access to existing term plans.
The Insurance Regulatory and Development Authority of India (Irdai) in October had mandated all life insurers to launch Saral Jeevan Bima plans from 1 January 2021.
We look at what this new plan proposes, who should purchase it and whether the more expensive pricing will defeat the product’s purpose of deepening insurance penetration.
Edelweiss Tokio’s Saral Jeevan Bima plan gives a sum assured of ₹5 lakh-25 lakh. People can choose the premium paying term starting from five to 40 years.
A sum ensured of ₹25 lakh with a plan policy term of 30 years for a 30-year-old non-smoking male person will come at a premium of ₹727 per month, including taxes. However, related to this, the company’s existing term insurance plan called Zindagi+ costs around ₹390 per month for similar terms.
“The pricing of a product is a representation of the expected mortality experience of its target market. As it is a newer customer category, product pricing and underwriting will evolve over time with the availability of more data,” the company’s spokesperson said.
Edelweiss expects the product to be bought by segments where the mortality experience is likely to be higher.
Describing the reason behind higher pricing, Mahavir Chopra, founder, Beshak.org, a research platform for insurance users, said: “Insurers use demography, income category, place of residence, occupation and education level of the buyers to create term products. The issue with Saral Jeevan Bima is that there are no filters approved, so the premium will be big as the risk is big.”
Specialists say Saral Jeevan Bima may work as an entry-level term plan. The modern term plans normally offer a minimum sum ensured of ₹25 lakh and a term of at least 10 years.
“Today, sum ensured of ₹5 lakh isn’t possible in the market. Some parts of the costs for distribution, policy issuance, and medical underwriting are fixed. So, allowing a ₹5 lakh product will be more costly proportionately than a ₹25 lakh plan. But from the ₹5 lakh sum assured point of view, these plans may not be expensive as there is no alternative available,” said Abhishek Bondia, managing director and principal officer, SecureNow.in, an insurance broker.
Edelweiss Tokio’s Saral Jeevan Bima plan will charge ₹145 per month for a sum ensured of ₹5 lakh and a plan term of five years.
“With this, people who earlier did not have access to term insurance will be able to easily differentiate and get financial security,” said Chopra.
However, a person with good educational qualifications and a job would find regular term insurance plans more affordable than Saral Jeevan Bima.