Ch. 18: Eligibility Requirements

While term insurance plans offer an excellent deal giving high coverage at extremely low premiums, there is a catch you must be aware of. it is designed only for a certain set or category of individuals.

Yes, all Term insurance policies come with a list of eligibility conditions related to age, income, occupation, location, and so on. You'll be eligible to buy a term plan only if you fulfil all the eligibility criteria laid down by the insurance company.

In this article, let’s take a look at these eligibility requirements.

• Entry Age
  The minimum entry age for buying term insurance is 18 years. The maximum age limit may range from 60 to 65 years, depending on the insurance company.
  
  So people above the age of 60/65 years won’t be able to buy term insurance from most insurance companies.


• Income
  Generally, you’ll be eligible to buy term insurance if your income is Rs. 5 Lakhs or more. However, there are some insurers who allow people with even lower income to opt for a term plan
  
  Also, your annual income also impacts the maximum sum assured you can choose. Basically, the maximum term insurance cover you can opt for is calculated on the basis of your income and the age at which you buy the policy.
  
  Insurers multiply your income by specific factors (depending on your age), such as 25X or 20X to arrive at the maximum sum assured you’re eligible for. And, in case you already have a life insurance policy, the sum assured of that policy is deducted from the term insurance cover you're eligible for.
  
  For example, suppose Harsh is 30 years old and earns Rs. 25 Lakhs per year. He also has a Whole Life Plan with a cover amount of Rs. 2.25 Crores. Let’s say the insurer he’s looking to buy term insurance from has specified 25X as the factor for the age bracket he belongs to.
  
  So, in this case, the maximum term cover he can opt for will be calculated as -
  
  [(Factor specified by the insurer X Annual income) - Existing life cover]
  = [(25 X Rs. 25 Lakhs) - 2.25 Crores]
  = (6.25 Crores - 2.25 Crores)
  = Rs. 4 Crores
  
  So, the maximum term insurance cover Harsh can opt for is Rs. 4 Crores.
  
  Income Proof Documents:
  In order to ensure that you’ll be able to afford the term insurance premiums, insurers will ask you to submit documents that prove your source and type of income. These documents may include -
  
  • ITR - Last FY / Last 2 FY
  • Form-16
  • Salary Slips - Last 3 months
  • Salary Certificate
  • Employer's Certificate
  • Audited Company Accounts - Last FY
  • Latest Employment Contract Letter
  • Bank Statement - Last 6 months
  
  

  Please note, this is just an indicative list. The insurer you’re buying from may ask you to submit different proofs of income for a different number of months/years.



• Educational Qualification
  Yes, your educational qualification can impact whether you get a term cover or not. With most insurers, you are likely to be eligible to buy a term insurance plan only if you’ve completed your graduation. However, some insurers even allow non-graduates to opt for a term insurance plan


• Occupation
  Generally, insurance companies allow professionals, self-employed, salaried individuals, small business owners, and even housewives to buy term insurance.
  
  They may, however, restrict specific occupations, especially those occupations that are too risky for them to cover. For example, if you work in an underground mine or a chemical factory, the insurer may reject your application.


• Place Of Residenc
  Insurers use different sets of pin codes for different insurance policies, which they integrate into their backend systems. These sets of pin codes may keep on changing constantly. Generally, insurers include all Tier1, Tier2, and most Tier3 cities - but it is always better to double-check before going through with your application.
  
  You can check if your pin code is eligible or not by entering it in the proposal form when requested. In case you’re buying from a financial advisor, you can get the list of pin codes from them.


• Medical history
  Last but not least, the overall sum assured and your premiums will also depend on your medical history. So, the insurer may ask you to undergo a medical checkup before they issue the term insurance. If, based on your medical reports, you pose a greater risk to the insurer, they might either charge expensive premiums or not issue you a policy at all.

If you do not fulfil the eligibility criteria for regular term insurance policies, you can consider purchasing the Saral Jeevan Bima.

Saral Jeevan Bima is an IRDAI mandated plan that is specifically for individuals who want to buy term insurance but do not meet the eligibility requirements to buy a regular term plan. It is standardised in its nomenclature, features, customisations, terms and conditions, etc. across insurers.

Saral Jeevan Bima does not have any restrictions related to education, income, location, occupation, etc. You can consider purchasing it if -

• Your education qualification is 12th Standard or below.
• Your annual income is on the lower side - the amount will vary, depending on the insurer.
• You reside in an area that is not covered under regular term insurance.
• You work in a risky/hazardous profession that is excluded from regular term insurance.

Saral Jeevan Bima works exactly like a regular term plan. If you pass away while the policy is active, your family will get a fixed amount of money. And in case you survive, there won't be any payback. Saral Jeevan Bima will not offer the claim payout in case of -

• Death due to suicide within the first year of purchasing the policy
• Death due to sickness within the initial 45 days. (This is an additional exclusion in Saral Jeevan Bima).

So, these were some of the eligibility requirements for term insurance policies. It is important to be aware of these requirements. Because you’ll be able to buy term insurance for your family only if you fulfil all the eligibility criteria mentioned by the insurer. In case you don't meet these requirements, you can consider purchasing the IRDAI-mandated Saral Jeeven Bima.