The “Saral Jeevan Bima” policy proposed by the IRDAI may pinch the pockets of policyholders as insurance companies venture into the uncharted territories of risk pooling.

The regulator has issued guidelines for a standard term life insurance product with a sum assured as low as Rs 5 lakh and going up to Rs 25 lakh. The policy which offers death benefits but no maturity benefit can be bought by individuals between 18 years and 65 years. All life insurance companies have been mandated to offer the standard product with effect from January 1, 2021.

According to the Insurance Regulatory and Development Authority of India (IRDAI), there are many term products in the market with varying terms and conditions; customers who cannot devote adequate time and energy to make informed choices find it difficult to select the right product with the intended sum assured.

“To take care of this situation and to make available a product by all life insurers that will broadly meet the needs of an average customer, it is felt necessary to introduce a standard, individual term life insurance product, with simple features and standard terms and conditions,” the IRDAI said.

The regulator added that this will reduce mis-selling and disputes at the time of claim settlement. The IRDAI, however, has left the pricing of the policies to the insurance companies.

The insurance industry while welcoming the decision said that the target customers would be different with lower middle income individuals set to be the potential beneficiaries.

At present, the majority of the term plans sold by the insurance companies have a sum assured starting at around Rs 25 lakh and these are mostly availed by individuals with income above Rs 3 lakh per annum. The new policies will benefit individuals who cannot afford a higher sum assured.

“The product caters to a different segment of customers as compared to the segments currently being served by the existing term products. This will increase insurance penetration,” said Anjali Malhotra, chief customer, marketing, digital and IT officer, Aviva India.

But for insurance companies, this adds to the risk. Several factors such as the place of living, the level of education, the job and lifestyle of the individual and the ability to afford healthcare will all add to the risk.

“Insurance is risk pooling. The lifestyle of a daily wage earner would be vastly different from that of a person working in a corporate office. So, when there is a pooling of both kinds of risk, premium is expected to be relatively higher,” said Santosh Agarwal, chief business officer, life insurance, Policybazaar.com.

“But the other way to look at it is there is now an option to have term insurance for this population,” said Agarwal.

“In terms of direction this is absolutely spot on. But, implementation is going to be complex because pure protection carries a certain amount of risk and in order to take on that risk a life insurance company needs to do a fair bit of due diligence of the customer which for a small policy is difficult to establish unless there is a clear binary system of saying which are the kinds of life that will be covered and which are not,” the CEO of a private life insurance company said.