The pandemic has made more people aware about the necessity of having a pure protection term life insurance cover. However, buying it now is not as easy as it was prior to the Coronavirus pandemic. With many people facing rejections of their term life insurance proposals, it’s important to understand the reasons why insurers may turn down a proposal.
Interestingly, life insurance industry statistics also show that life insurance has penetrated at a much faster rate post-pandemic.
As per insurance regulator IRDAI’s latest figures, 18.5 lakh individual life insurance policies were sold during April-May 2021 against 14.2 lakh during the same period last year.
Life insurers were flooded with rising number of claims post the second wave of Covid-19, which has affected their profitability. They are under pressure from reinsurers to tighten the underwriting requirements. Therefore, according to reports, most life insurance companies are accepting only 60 to 70 per cent of the overall applications for term life insurance policies.
Has the pandemic made availing life insurance more difficult?
People started valuing the importance of life insurance and the protection it offers during the pandemic. As term life insurance policies are pure risk plans with high sum assured and low premiums, insurance companies need to have effective risk management practices to balance the risk.
“We have introduced additional checks like screening for Covid or related symptoms through questionnaires and mandatory video verification of insurance applicants by physicians,” said Sunil Sharma, President, Chief Actuary and CRO, Kotak Mahindra Life Insurance Company Limited.
“Moreover, above a certain sum assured, there is a requirement of medical examination and lab tests.”
To manage the high exposure on individual lives, maximum cover per life is also restricted up to a certain sum assured,” he adds.
Reasons why you can be refused a life insurance cover
For your insurance provider, term plans are pure risk plans with high sum assured and low premiums, so there’s a higher due diligence to assess & issue these policies from their end.
As per Sharma, since the risk assessment of term products is done on the basis of reports by physicians and lab tests, the reasons behind rejection are mostly with respect to medical findings.”
Post the pandemic, people are even choosing a high sum assured but those looking for 8 figures or more are not really able to opt for the same.
Is vaccination a must for term life insurance cover?
As per Naval, “Life insurance companies can reject applications even if there is any borderline disease detected, or complications in health, or if the proposer fails to furnish COVID19 vaccination certificate.”
Vaccination has consistently been hailed as one of the best ways to prevent death from Covid-19. Therefore, producing a vaccine certificate can help an individual ensure that their term life insurance proposal is not rejected.
Sanjay Tiwari, Director – Strategy, Exide Life Insurance, however, clarified: “While there have been some news reports about vaccination being a prerequisite for buying a life insurance policy, the fact is that there is no such condition,” he says.
“The regulator has advised insurers against making vaccination mandatory.”
Tiwari emphasises the importance of disclosures, adding that insurance contracts are based on the principle of ‘utmost good faith, which assumes that customers disclose all material facts accurately at the time of completing the proposal form.
“Medical non-disclosure includes concealing of facts such as critical illnesses or lifestyle disorders which play a key role in deciding the premium rates,” he added.
Financial information also impacts the term life insurance policy’s conditions, including the premium and sum assured. Non-disclosure of facts can result in the rejection of a proposal. Tiwari from Exide Life adds that non-disclosure of financial information also includes details of previously bought insurance as it becomes a case of availing more insurance than one is eligible for.
A few other requirements include furnishing of salary slips, income tax returns (ITR), Form 16, CA audited business accounts, risk rating score, and surrogate financial evidences to bridge the gap between the sum assured applied for, and actual eligibility basis assessment of standard income evidences, added Tiwari.
Does your credit score affect your chances at having a good life insurance coverage?
Credit score is an indicator of your financial discipline. While this is predominantly used by banks to judge your credit worthiness, insurance companies are now also looking into this data.
According to Tiwari from Exide Life, “Customers who have a healthy credit score will undergo a relatively relaxed underwriting norm with fewer to no financial evidence required for issuance of the policy.”
In case the life assured has a poor credit score, it will demand strict scrutiny and additional financial documentation, he adds.
However, Atri Chakroborty, Chief Operating Officer, IndiaFirst Life Insurance Company, points out that more than the credit score, actual income proofs count as a more credible source of information on insurance worthiness of a customer.
“The financial risk assessment is carried out by checking actual income proofs along with evaluation of other key risk parameters like existing insurance, income to sum assured ratio and the overall profile of the customer. This is to ensure that the customer must have a regular income making him/her capable of paying the term insurance policy throughout,” Chakroborty added.
While the pandemic has probably made this push product into a pull one, the truth remains that buying life insurance cover is extremely important; the earlier the better. As one gets older, the responsibilities and premium for life cover only increase. It is hence financially prudent to purchase insurance at a younger age when you are typically healthier and lock in the premiums payable. In future, incremental cover, if needed, can be taken additionally.
Elizabeth is a Qatar based writer and content consultant who loves to explore topics that spark her curiosity and challenge her existing notions of life and its experiences.