Why ULIP mis-selling has become rampant ?

We always hope for the best, but have you ever asked yourself the question – Will my demise leave anybody in a financial lurch? If the answer is yes, it is time for you to consider hedging this risk with a term insurance plan. These plans work as an income replacement tool at the time of the death of the primary breadwinner. The next question usually is how much coverage should somebody take? In short, answer is that there is no perfect or single formula.

The calculation should take into consideration the individual’s family lifestyle, long-term financial responsibilities such as a healthcare commitments to retired parents, children’s higher education expense, as well as any financial liabilities such as home or vehicle loans. The life cover must be calculated to cover all these in case of the policyholder’s demise.

As a thumb rule, individuals up to the age of 40 should take a life cover equivalent of 20-30 times their annual income. For individuals between 40 and 50 years, a life cover of 10-15 times the annual income is recommended, and for individuals above 50, the life cover should ideally be 5 times their annual income.

According to the Insurance Regulatory Authority of India’s (IRDAI) latest annual report, life insurance penetration in India stands at 2.74% of the Gross Domestic Product, as against the global average of 6.31%.

The low penetration is also visible by comparing the number of Covid-19 related death claims received by life insurance companies compared to the total number of lives lost due to the pandemic in the country.

What is the cause of people’s reluctance when it comes to purchasing term insurance plans? One of the common hurdles for people has been their inability to wrap their head around the fact that “they personally would receive nothing at the end”. In addition to this, many people buy term insurance with a policy term lasting until they turn 60 or 70.

As India’s life expectancy has steadily increased and more people are living past their 70s and 80s, more people are outliving their policy term, causing disappointment on the part of the policyholder. Keeping these issues in perspective, insurance companies have been innovating term plan offerings to meet increasing/varied/allied customer needs.

Critical Illness Benefit

The 21st century lifestyle has given rise to ailments such as diabetes, hypertension, cancer, heart conditions and many more.

According to a report from the National Cancer Registry Programme, India, “The projected incidence of patients with cancer in India among males was 679,421 (94.1 per 100,000) and among females 712,758 (103.6 per 100,000) for the year 2020. One in 68 males (lung cancer), 1 in 29 females (breast cancer), and 1 in 9 Indians will develop cancer during their lifetime”.

The Million Death Study (MDS) report prepared by the Centre for Global Health Research in collaboration with Registrar General of India highlights that in 2015, 2.1 million deaths occurred due to heart ailments alone.

In India, a single chemotherapy session costs anything from Rs 1 to Rs 2 lakh. According to National Health Authority of India, 64.2% of total health expenditure by households are out-of-pocket expenditures. Understanding these pain points of customers, life insurers have introduced term insurance.

(The writer is Chief Distribution Officer, ICICI Prudential Life Insurance Company Limited. Views expressed are personal)