A term life insurance ensures that the family is financially protected when the breadwinner dies. It gives them a significant amount of money that can be used to meet expenses, settle debts, finance children’s education and more.
One of the main advantages of term life insurance is that the policyholder can buy an affordable amount of life cover at a relatively low premium.
However, it is essential to note that a term life insurance is not an investment product, and does not provide a maturity benefit. “Its key advantage is that it can provide life cover at a relatively affordable cost, particularly when bought at a younger age and with a favourable health profile. It should primarily be seen as an income-replacement and protection tool, rather than an investment product,” said Minoo Mantri, EVP, insurance, Anand Rathi Share and Stock Brokers.
Term insurance is mostly beneficial for individuals with dependents or significant liabilities. “Via the underwriting measure, the appropriate cover is assessed by the insurer based on income, liabilities, dependents, existing assets and future goals, rather than simply choosing the highest available cover,” said Mantri.
Depending on the applicant, the insurer might assess age, medical history, lifestyle, occupation, income, existing insurance, proposed sum assured and other relevant risk factors. Additional medical tests, financial documentation or clarification may be required in some cases, which can extend the processing time. “A longer underwriting process is therefore not necessarily negative; it may reflect a more detailed assessment of the risk. Customers should disclose complete and accurate information, particularly regarding health, lifestyle and existing insurance, to avoid repudiation of the claim due to non-disclosure of material facts. A customer must align with the foundational rule of insurance, i.e., of utmost good faith,” added Mantri.
Experts say the underwriting process might take more time because of a variety of reasons, including the applicants’ poor health, discrepancies in the documents, higher cover amount, incomplete documents or prolonged medical examination. “The underwriting process involves a number of responsibilities for both the agent and the applicant, as well as several stages to be completed by the underwriters. On the one hand, the underwriting process allows insurers to determine the appropriate premium rate and accept or reject the application. On the other, this process can be complicated and time-consuming for both agents and applicants. Thus, though the underwriting process is an essential mechanism to establish reliable relationships between agents and applicants, underwriters should make the process as transparent and as efficient as possible,” said Dinkar Sharma, company secretary and partner, Jotwani Associates.
Term life insurance has several advantages, including affordability, family financial security and the absence of complexity. Compared with other life insurance products, a term life insurance is a simple product to comprehend. Also, because of the flexibility of term life insurance (policies with different premium payment terms and coverage), consumers can choose the optimal option according to their financial situation.
But there are also disadvantages. “Term life insurance tends to be more expensive with age, and one’s premium rate depends on several factors, including smoking, occupation, health and the amount of the life cover. Moreover, the underwriters might deny the application, impose additional premium rates, and/or exclude certain pre-existing conditions, depending on the applicant’s health, when determining the premium rate,” said Sharma.
It is essential to keep in mind that the insurance company is not obliged to pay any claim. It pays the claim in accordance with the specific terms and conditions of a contract, the law or the particular circumstances of the case. Thus, lack of transparency, false information or failure to follow specific terms and guidelines may result in the denial of a claim. Therefore, when choosing an appropriate term life insurance, the consumer should consider not only the price, but also the company’s reputation regarding the payment of claims, as well as the details of the contract. In addition, the consumer should inform his family about the existence of the insurance policy to ensure that they know how to proceed when he dies.
“Premiums are generally higher when the cover is bought at an older age, and health, lifestyle and other underwriting factors can affect eligibility and pricing,” said Harsimran Sandhu, professor and area chairperson, finance, Institute of Management Technology, Ghaziabad. “A practical priority is to choose adequate cover based on financial needs rather than selecting an amount solely because its premium is cheaper.”
