Everybody knows insurance is a necessity, but many defer purchasing one for various reasons - from being unable to find the right insurance product to issues like paperwork and medicals. This has prompted insurance companies to come up with group insurance products to make decision-making for this class of customers easy.

"These products are easy to understand and they are pre-underwritten , making it easy for the buyers to purchase them," says Gaurav Garg, managing director and chief executive officer, Tata AIG General Insurance Company. Most group insurance products are in either the outstanding loan insurance or personal accident and health insurance categories.

OUTSTANDING LOAN INSURANCE

Individuals borrow money from banks to fulfil certain needs. But, trouble begins when the borrower dies before repaying the loan. If family members are not in a position to repay the loan, they may not be able to enjoy, say the house, funded by a home loan. Group mortgage reducing term insurance can come to the rescue in such a scenario. When you take, say a home loan, the bank also offers you this insurance cover. "The insurance product is designed in such a manner that the tenure of the loan and the tenure of the insurance match," says AS Narayanan, chief distribution officer, Bajaj Allianz Life Insurance Company.

With every EMI payment, the loan outstanding keeps falling. The insurance company prepares a schedule in which the sum assured also reduces with every EMI and becomes equal to the outstanding loan. If the borrower dies, the insurance company will pay the bank off. These are single-premium products . Naturally, the premium in absolute terms would seem high. Most borrowers do not have the money at hand to buy an outstanding loan insurance at the start of the loan.

Hence, many banks club the insurance premium with the loan. The bank pays the premium upfront to the insurance company and then recovers it from the borrower by accordingly inflating the EMI. This being a product on the group platform, the underwriting requirements are generally less stringent than with individual policies. Depending on the group size and demographics, insurance companies offer relaxed underwriting process.

For example , a 35-year-old taking a loan of up to Rs 70 lakh is insured without a medical test. (The maximum coverage that can be offered without a medical test is known as the nomedical limit.) As age advances, the coverage available without medical test falls. "The borrower signs a goodhealth declaration at the time of purchase and the insurance company may choose to conduct medical tests based on random sampling even for those who are in the no-medical limit," points out Narayanan. If you have borrowed more than the no-medical limit applicable to your age, then medical tests become mandatory. Insurers also offer the total permanent disability (TPD) benefit along with life insurance.

Source : ET Bureau