Life Insurance Complexity: A Growing Concern for Indians
Zerodha co-founder Nithin Kamath has voiced concerns about the increasing complexity of life insurance policies, suggesting this is the primary reason why many Indians avoid obtaining coverage. In a post on X, Kamath detailed the growing disconnect between what insurance companies offer and what customers believe they are purchasing.
Kamath’s insights underscore a challenging reality in the insurance sector. Underwriting processes, used by insurers to assess applicants, have become considerably more stringent. This leads to rejections, higher premiums, and reduced coverage amounts. Insurers now require comprehensive medical disclosures and tests, scrutinizing health profiles more thoroughly than in the past. This has resulted in a trend of rejecting applications or increasing premiums for previously overlooked risks.
Perhaps the biggest reason why people don’t have life insurance is because the policies are a nightmare to understand.
Moreover, the choice of the insurance provider has become more critical. According to Kamath, certain insurers have introduced novel plans, while others persist in offering products with limited benefits which makes purchasing life insurance a complicated process. Experts advise prospective buyers to carefully examine key metrics before committing to a plan. These metrics include claim settlement ratios over 97%, solvency ratios near 2, and annual premiums of ₹5,000 crore.
Some insurers have stepped up with innovative offerings, but others continue to push out products with limited benefits.
Critical illness benefits, once a significant selling point, now have limited durations because of changes in regulations. Most insurers set caps on these add-ons for only a few years. Consequently, buyers must understand exactly what their policy covers and, more importantly, doesn’t. “Claim guarantee” plans are becoming more common and guaranteeing payments after medical tests, though they are more expensive. The rapid claim payout method is also being employed, providing a partial amount (like ₹2 lakh) rapidly for urgent expenses. Zero-cost term plans, which refund premiums if surrendered within a certain period, are also seeing less restricted conditions yet are only suited for specific profiles.
Finally, the Married Women’s Property (MWP) Act, designed to shield beneficiaries from creditors, is gaining renewed attention. Conversely, the Act’s irreversible nature can create complications if life circumstances evolve, as Kamath pointed out about the complexity. Amid stricter underwriting practices and confusing policies, consumers would then need to be extra cautious.
