Term insurance portability means that you can move your term policy from your existing insurance provider to another insurance provider without losing any of your existing policy benefits. In a term policy, the primary benefit is the death benefit. This benefit is given to your near and dear ones in case you pass away during the policy period, which remains the same. For instance, if a person takes a 20-year, ₹50 lakh term policy with insurer A and ports it to insurer B after ten years, insurer B will now cover the person for the remaining ten years of the policy.
Before we get into more detail about term insurance portability in India, here’s a refresher on term insurance.
As you probably know by now, term insurance provides cover for your life with only death benefits. If someone has a 30-year, ₹1 crore term life policy, and they pass away during this 30-year term, their nominee receives the ₹1 crore. But if they survive the 30-year term, they receive nothing.
In short, a term policy covers the risk of death only; it does not include any survival or maturity benefits. Because of this limited cover, you will find that term policy premiums are the lowest among life insurance products. All reputed insurers offer such term life insurance products. They also offer term plan premium calculators which you can use to find out how much premium you would have to pay.
Term insurance portability in India
Term insurance portability is currently unavailable in India. The Insurance Regulatory and Development Authority (IRDAI), India’s insurance regulator, has only allowed health insurance plan portability from one insurer to another. As per the IRDAI, this is because there are several challenges to allowing term insurance portability.
Why IRDAI has not allowed term policy portability
One of the main challenges in porting term insurance policies is the sustained risk. Unlike health policies, which are typically one-year policies where premiums are defined at the end of each policy term, term policy premiums are decided at the beginning of the policy. However, as each year goes by, the risk for the insurer is greater and greater. The insurer would have taken this risk into account before deciding on the premium. Now, let’s imagine halfway into the term policy period, a customer decides to port to a new insurer; the new insurer will need to take up the risk of covering that person who is now older and at more risk than before.
Since porting essentially means moving from one insurer to another without losing any of the existing benefits, the new insurer will have to continue to provide the same benefits. However, because the risk of covering the person now is higher, the insurer will need to increase the premium to be able to cover them. This leads to the same benefits as before but at a higher cost.
The way forward
If all insurers agree to standardise term life products, it would mean near-identical premium rates, which would mean that customers can move from one insurer to another without cost spikes.
In a scenario of such standardised term life policies, the variable would then be the customer service given by the insurers. If your insurer is providing you with excellent customer service, why would you want to move? Similarly, if your queries to the insurer are going unanswered or not being answered in detail, you would have the option of moving to a provider who provides better service.
What you can do in the meantime
- Take time to choose: Now that you know what is a term insurance plan, you can take your time to compare and choose the policy that best fits your needs. There are enough life insurance aggregator platforms out there that allow you to look at multiple term policies and compare them against various metrics.
- Take advantage of the free look-in period: Once you have chosen your term plan, paid the premium, and received your policy documents, you get a free look-in period, which may vary from 15 to 30 days, depending on the insurer. This regulator-stipulated period is for you to go through the policy terms and conditions and see if there are any clauses that you might object to. This period can be used to clarify such issues with the insurer. If you are still unsatisfied and want to cancel the policy, you can do so within this free look-in period. The insurer will deduct the premium for the 15 or 30 days and return the rest to you. If there are other charges (stamp duty or medical test charges), these too will be deducted before returning the remainder.
Term insurance portability is unavailable in India at present. Hence, you have to be careful to choose a term policy that fulfils all your needs. Talk to a trusted financial advisor, do your research – this is your life we are talking about. Also, do not waste the free look-in period with your term policy. If a policy is not all that it was cracked up to be, you are better off losing a tiny portion of your premium and cancelling the plan than becoming saddled with a plan that you are not comfortable with. Take your time, choose carefully, and live with peace of mind.