Term insurance plans are designed to offer financial protection to your family by acting as your replacement in the case of your unfortunate absence. Term plans are a smart financial move considering insurance providers offer you access to a significant coverage amount in exchange for extremely affordable premiums. However, since such a large payout is involved, term insurers are extremely stringent about their required eligibility criteria for buying term insurance plans.
What are the Eligibility Criteria for Buying Term Insurance in India?
Term insurance plans are predominantly financial tools. However, when calculating the premiums towards these policies, the underwriting team takes the help of actuarial science to determine the pricing based on multiple factors. This helps them defend the insurer from going bankrupt over considerable payouts against nominal premiums and subsequently, ensures the long-term financial stability of the term insurer in discussion.
The aforementioned factors are set as eligibility criteria for individuals purchasing term insurance policies in India. Here is a look at these criteria -
- Income
In general, plans from reputed term insurance providers offer their plans to individuals from 18 to 65 years old. (P.S. There are also whole-life plans that extend the coverage for individuals till they are 99 years old.)
The age range is crucial since during this time frame
- Individuals stay professionally active.
- Applicants can pay off their premium (continuing employment) sans any disruptions.
The underwriting team of term insurance companies take into account the age of the applicant, utilises the preset multiplier on their income and determines the maximum coverage amount that they are eligible for.
| Age | Multiplier |
|---|---|
| 18 - 35 years | 25 |
| 36 - 40 years | 20 |
| 41 - 45 years | 15 |
| 46 - 50 years | 12 |
| 51 - 55 years | 10 |
| 56 - 65 years | 5 |
So, let’s say, Ravi is a 33 year old, with an annual income of ₹15 lakhs. In that case, he is eligible for a maximum sum assured of ₹15 lakhs * 25 = ₹3.75 crores.
2. Occupation
When you apply for a term insurance plan, the insurer sends you a questionnaire that comprises questions regarding your occupation. The underwriting team designs the questions in a manner that gauges the risk proportion in your particular industry and job description.
Say, if your occupation appears riskier than the standard level, they will extend you a more detailed questionnaire, focusing majorly on your occupational hazards. From here, the underwriting team will either reject your application altogether or extend a counteroffer for
- A different plan
- Higher premium on the same policy
- Lower coverage on the same plan
-citing reasons that your occupation is riskier.
3. Education
Term insurance providers/underwriters believe that the educational qualification of a potential policyholder reflects their premium payment potential and life expectancy. Thus, based on the educational qualification of the applicant, the underwriting team may either - reject a term insurance application, or extend a term plan with/without a capping on the maximum sum assured.
To understand the above three eligibility criteria better, here is an example of a 30-year-old term insurance policy applicant and how his education, occupation, and income influence his term insurance purchase -
| Education | Qualification | Term Insurance Eligibility | |
|---|---|---|---|
| Salaried/Non-Salaried | Income | ||
| Below Class 10 | Not eligible | ||
| Class 10th passed | Salaried | ₹10 lakh or above | Max Life |
| Class 10th passed | Non-Salaried | ₹10 lakh or above | HDFC Life and Max Life |
| Class 12th pass | Salaried and Non-Salaried | ₹5 lakh or above | HDFC Life and Max Life |
| Diploma | Salaried and Non-Salaried | ₹5 lakh or above | HDFC Life and Max Life |
| Graduate | All insurers offer | All insurers offer | |
| Post-Graduate | All insurers offer | All insurers offer | |
4. Medical history
Term insurance is heavily dependent on your life expectancy, and hence, it’s no surprise that the underwriting team will take into consideration your medical history. So, when applying for term insurance, in case you have had any history of hospitalisation/surgeries/procedures, stay prepped with the documents for the same. Once you have applied for a term insurance plan, in case you have any pre-existing medical conditions, the term insurance provider can trigger additional medical tests.
Based on this analysis, you can expect the insurer to either deny your application or accept the same with or without counteroffers regarding -
- Reduced cover on the same plan
- Increased premium on the same policy
- Different plan
- Excluded riders
5. Hobbies
Say, you are an avid sky-diver with a stable occupation.
While skydiving might just be a hobby for you, your term insurer will view this as a high-risk lifestyle/hobby that poses high risks of payouts.
So, in case you harbour such risky habits, chances are high that your term insurance application will be rejected.
6. Lifestyle
For term insurance providers, your lifestyle criteria largely depend on your smoking habits. The questionnaire that term insurers send over when you apply for your policy also comprises your smoking habits. While the questions may be as simple as -
- Do you smoke?
- If yes, then how many a day?
-the screening process isn’t. So, say you are a smoker, but fail to disclose the same to your insurer in the questionnaire, here is what can happen -
CASE 1: In case you lie when you apply for the term insurance plan
Once you have applied for a term insurance plan, the insurer requests you to undergo certain medical tests. One of these is the Urine Cotinine test which detects the level of nicotine in your body. If you pass the test, you can continue as a non-smoker. However, if you fail the test, your profile is forwarded as that of a non-smoker.
In this case, your insurer will provide you a counteroffer with a different policy or spiked premiums on your current plan.
CASE 2: If you start/resume smoking after you purchase the policy
Ashish is a 28-year-old, non-smoker, with a ₹2 crore coverage from a reputed term insurer. He purchased the policy in 2019 and started smoking in 2021. Now, his initial premium was ₹21k - ₹24k.
However, when he started smoking, he posted an Instagram post with a smoke in his hand. Inevitably, his term insurers tracked it down and during his next premium payment, informed him about the same and spiked his premium back to that of a term insurance for smokers, which came up to ₹42k - ₹50k a year.
What are the Documents Required to Buy a Term Insurance Policy?
When purchasing a term insurance policy, there are a few documents that you need to submit that would help your insurer cross-verify the details you have provided on the questionnaire.
Here is a list of the documents that you need to keep ready for submission (it differs from one term insurer to the other) -
| Documents | ICICI Prudential | HDFC Life | MAX Life |
|---|---|---|---|
| ID Proof |
|
|
|
| Address Proof | Aadhaar card / Passport / Voter ID / Driving licence | Aadhaar card / Passport / Voter ID / Driving licence |
|
| Income Proof |
|
|
|
| COVID | COVID vaccination dates and certificates | COVID vaccination dates and certificates | NA |
| Miscellaneous | Other life insurance policy information (if any) |
|
Other life insurance policy information (if any) |
Why Should You Buy a Term Insurance Policy?
- Financial security for the family: If you avail of a term insurance policy, it will act as a financial replacement for you in your unfortunate absence. This will ensure financial protection for your family by meeting their future requirements.
- Affordable premiums for significant coverage: Considering that you meet all the pre-set eligibility criteria, term insurance plans are one of the most affordable financial protection tools available in the market. As a 20-year-old, healthy salaried male, with no smoking habits, you can get a ₹1 crore coverage till you are 65 years old against a nominal premium of ₹9k - ₹11k.
- Locked-in premiums as per purchase age: In the case of term insurance plans, your premiums stay fixed as per your age during the purchase of your policy. And, as you know, the earlier you purchase a term insurance plan, the lower the risks of pay-out your present to your insurer since you are more likely to be healthy in your younger days. Thus, you end up paying extremely affordable premiums across your policy tenure.
- Multiple death payout mode: When purchasing the term insurance plan, your term insurer requires you to fill them in about the mode of sum assured disbursal you want in the event of your death.
If you choose the lumpsum mode, the entire sum assured will be disbursed to your family in one go. If you choose the staggered payout mode, the coverage amount will be disbursed in pre-decided intervals.
5. Several premium payment modes: Keeping the diverse pool of potential policyholders and their range of financial stabilities, insurers offer 3 types of premium payment modes -
- Single - A single upfront payment of the entire premium amount.
- Regular - A yearly/monthly payment of premiums till the end of the policy tenure.
- Limited - Premiums are paid over pre-decided intervals of time (5 years, 7 years, 10 years, 12 years, 15 years, and so) where the payment gets completed before the policy tenure comes to an end.
6. Multiple riders: Term insurance policies may just be vanilla plans offering pure financial protection, but you can always customise them with a diverse set of riders. These riders include - Critical Illness, Waiver of Premium, Return of Premium, Increasing Cover, Decreasing Cover, Terminal Illness, Personal Accident, etc.
Conclusion
Acknowledging the term insurance eligibility criteria might help you to stay prepared in advance about your maximum coverage amount and staying prepared with the relevant documents will definitely speed up the process of availing the plan. While these eligibility criteria stand true for all reputed term insurance providers in the industry, it’s best to cross-check the list when you are finalising a term insurance policy. This ensures that you are applying for a suitable policy that caters to your educational, financial, and occupational qualifications.