Term plans score over savings-linked insurance during COVID-19 times

The sudden outbreak of coronavirus and uncertainty surrounding the pandemic has triggered much-needed change in mindset towards insurance. It is no longer seen as a tax-saving instrument that you hurriedly purchase closer to the end of the financial year. People are buying it for the real purpose, that is, having financial protection in the event of hospitalisation or in the worst case, death.

The demand for health and life insurance policies has grown in the last few months. In an even more encouraging trend in the life insurance segment, customers are no longer treating insurance simply as an investment product. They now prefer pure protection plans, that is, term insurance, over savings-linked insurance policies.

"With the growing number of COVID-19 positive cases in India, it seems that people have become more aware of the importance of having term life insurance. We have seen a growth of 40 per cent in term plans in the first quarter of the fiscal year 2020-21. The average age of customers investing in them in recent months has been 30-35 years," says Santosh Agarwal, Chief Business Officer, Life Insurance, Policybazaar.com.

Another marketplace PolicyX.com recorded an increase of 20-30 per cent in term insurance sales compared to the last year. A recent survey -- India Protection Quotient- Express (IPQ - Express) - by Max Life Insurance done across 25 cities revealed the same trend.

It says that term insurance ownership was highest across different categories of life insurance products among the respondents. In metros, 41 per cent respondents said that they owned term products against 22 per cent who owned market-linked products and 39 per cent who owned endowment products.

"Based on past experiences, it has been observed that pandemics provide tailwinds to protection and guaranteed products. It is encouraging to see awareness of protection products getting a boost out of the current situation and we're certain pure life covers will see a renewed interest within the sector in the nearer term," says Prashant Tripathy, Managing Director & Chief Executive Officer of Max Life Insurance.

Another insurer Bajaj Allianz Life Insurance says in the quarter ended June 2020, its term mix in the number of policies went up to 37 per cent from 11 per cent in the previous quarter. "The customers today have become more aware of the risks surrounding them, and they are increasingly purchasing protection plans," says Tarun Chugh, MD&CEO, Bajaj Allianz Life.

This is in contrast to the traditional trend of people choosing endowment or unit-linked insurance over term insurance simply because former offers savings benefit along with the death cover against term plans which have no maturity benefit. People seek value for money. So, even as term plans are cheaper than endowment or ULIPs, not many prefer to buy it as you receive nothing if you outlive the policy period.

Chugh of Bajaj Allianz further says that guaranteed plans are also in demand but market-linked products have lost interest. "The instability in global and domestic markets has made customers cautious, and this has resulted in them looking for guaranteed products, which has also seen an increase in demand in recent times. In addition, the volatile markets has dissuaded customers from investing in market-linked products, and we will have to wait and watch till the year-end to see how things will change."

In another key trend, with the rise of telemedical post-pandemic, customers even from tier-2 and tier-3 cities have evolved to adopt digital services. "They have become fairly agile in self-servicing their policies on digital modes, interact with us over video calls, and make purchases online. I believe this will lead to some long-term changes the industry will experience," says Chugh.

Policybazaar.com says it has issued 58 per cent of the policies through telemedical in the last few months compared to 36 per cent in the pre-COVID phase.