IDBI Federal Senior Termsurance – Guaranteed acceptance at a price  

June 27, 2011

It’s an innovative, transparent product that allows entry till the age of 85 years without medical tests and covers for whole life. But be careful as the higher age groups may end up paying more premium than the sum assured within a few years

Raj Pradhan

IDBI Federal Senior Termsurance plan is a whole-life plan, which has a minimum entry age of 50 years and a maximum entry age of 85 years for a minimum sum assured of Rs2,338 and maximum sum of Rs5 lakh. The minimum yearly premium is Rs1,000 and the maximum premium is Rs2,13,890 (for individuals of 85 years for a sum assured of Rs5 lakh). The premium is obviously expensive if anyone wants to enter at old age.

The plan offers guaranteed acceptance with no medical tests. In the unforeseen event of the demise of the person insured within the first two years of the policy, 125% of the total premium paid shall be returned. After two years, the policyholder is insured for the sum assured for life. The amount of premium and cover remain the same throughout the life of the policy, except after the age of 90. At the age of 90, premiums will stop, but the life insurance cover will continue.

The premium rate for a person aged 50 years subscribing to the Senior Termsurance plan will be Rs18,195. In comparison, the premium rate for a person aged 50 for Aegon Religare Level Term Plan is Rs6,050, while that for ING Vysya Life - Term Plan is Rs7,555. So, the IDBI Federal new offering may seem steep when compared to other insurers, but it has to be remembered that this is a whole life product, whereas the maximum maturity is 75 years for existing term plans. Moreover, the premium rates for this product are fixed for specific age entry level irrespective of the medical condition, while the term plan premiums can be loaded at the time of underwriting, based on the medical condition of the person.

Advantages:

 'No questions asked' on the whole-life plan and no medical test is required for entry to the plan till 85 years of age. It will benefit to enter the plan at 50 years rather than 85 years to avail a lower premium. It is an innovative, transparent plan.

 At the age of 90 the premiums will stop, but the life insurance cover will continue.

 Strange segments that will benefit from the product are those with terminal illness, or anyone in a poor health condition who may not expect to survive beyond a couple of years. The insurer will pay 125% of the total premium to the family. This is like making 25% returns on investment for the family, any time between the start of the policy up to two years.

Disadvantages:

 The premium at higher ages is hefty. The premium for an 85-year-old person entering the plan will be Rs2,13,890 for a sum assured of Rs5 lakh. If the person dies after two years, the family will received Rs5 lakh, which is less than the premium paid!

 If the death happens within two years of taking the policy, 125% of the total premiums paid shall be returned. The sum assured will be paid only if the death is after two years of the policy. This is unlike term life insurance which pays the sum assured in the event of death, at any time, subject to verification.

 The maximum sum assured is only Rs5 lakh. The minimum sum assured of Rs2,338 is more about marketing on a premium of less than Rs100 per month.

 The true benefit of term life insurance is risk protection during working life. It is expected that the person would have saved enough by the time of retirement that can see him through even if the term life insurance expires. Currently, the maximum entry age is 65 years and maximum maturity is 75 years for term life insurance plans.

An innovative plan that allows entry up to the age of 85 years without medical tests and offering coverage for the whole life will come at a price. If the person has not saved enough during his working years, he may not have enough money to pay the steep premium during his old age and hence the plan is self-defeating. Nevertheless, IDBI Federal has something new to offer to customers. The new product is also transparent, as was the Retiresurance guaranteed traditional pension plan. (Read, "IDBI Federal Retiresurance - Aims to revive dwindling pension market".)