Undergrad Degree, Sizeable Salary —Term Insurance In India Isn’t For Common Man

Imagine walking into a store only to be told that you need a degree, a high salary, and a premium address just to make a purchase. Sounds absurd, right? Yet, this is the reality for many Indians seeking term insurance. Instead of being a straightforward safeguard, term insurance can feel like an elite privilege, reserved for the select few who meet the insurance companies' financial and social benchmarks, rather than a necessity accessible to all.

India's insurance penetration stands at less than 5%, which is relatively lower than the global average, according to data from the Insurance Regulatory and Development Authority of India and the National Insurance Academy. And this, too, is largely dominated by so-called "traditional" life insurance products, which offer a combination of insurance and investments.

Many insurers have a strict social and educational qualification checklist, according to the Ministry of Finance and NITI Aayog.

Educational requirement is one of the most formidable barriers to obtaining term insurance in India. A person has to have an undergraduate degree at the minimum to qualify for a term insurance by Canara HSBC Life Insurance or Bajaj Allianz General Insurance Co. This effectively excludes a significant portion of the population, especially in rural areas where access to higher education is limited.

Income serves as another critical determinant. Insurers commonly stipulate a minimum annual salary of Rs 5 lakh, which excludes many individuals, particularly those in lower-income brackets or engaged in informal employment sectors.

Certain pin codes, considered high-risk by insurers, are systematically excluded from coverage. This practice extends even to metropolitan regions like Mumbai, where residents in specific localities may find themselves without essential financial protection, according to Beshak.org Founder Mahavir Chopra. While insurers (and reinsurers) argue that such measures are necessary to mitigate risk, they simultaneously perpetuate disparities in access to insurance across different regions.

Demographic allowances of term insurance often boil down to reinsurers, who are essentially insurers for insurance companies. They help spread the risk, but they also set strict guidelines on who qualifies for coverage. This means if reinsurers deem certain occupations, educational qualifications, or regions too risky, insurance companies follow suit.

IRDAI has been working towards making insurance more accessible. Recent regulations aim to ensure that insurance products are available to everyone, regardless of their socio-economic background. This could mean a wider variety of insurance products to suit the diverse needs of individuals. Despite these progressive measures on paper, the practical implementation and impact of these regulations paint a more nuanced picture.

One key area of focus has also been the revision of surrender charges by IRDAI. Surrender charges are fees levied by insurance companies when policyholders terminate their policies prematurely, usually before the maturity period. Historically, these charges have been criticised for being high and restrictive, dissuading individuals from discontinuing policies, even when they no longer meet their financial needs. Under the new regulations, insurance companies are mandated to cap surrender charges at reasonable levels. This means that policyholders can now terminate their policies without incurring exorbitant fees, thereby making insurance products more adaptable to changing life situations.

While IRDAI’s new regulations aim to make insurance more inclusive, there’s still a long way to go.

Tune in to Big Decisions with Beshak.org's Mahavir Chopra on Friday, for more insights on term insurance and its exclusivity.