AEGON Religare has been cautioning the masses against ending up with a low insurance cover. But then why does it insist on selling you a lower insurance cover at a higher premium?

Pradip Kumar Paul, age 43, with an annual income of Rs5,10,024 made an online purchase of Rs50 lakh sum assured (SA) of AEGON Religare iTerm for policy term of 25 years, with a premium of Rs10,449 on April 5, 2012. After the medical test on 14th April, the customer was told that "The requested cover is not justified based on the income evidence supported" and they offered SA of Rs 30 lakh at premium of Rs9,876. Religare was actually asking Mr Paul to take a lower cover! Why is that ironic? Because AEGON Religare, of course, has had a long-running campaign trying to 'educate' the general public on the need to take sufficient insurance cover. The advertisement shows Bollywood star Irrfan Khan highlighting the fact that the Indian masses tend to take less life insurance cover than what they need. According to the ad, not taking sufficient life cover is a disease in itself or 'Kum Insurance lene ki bimari' or KILB. So why was Mr Paul offered kum insurance?

The reason was simple. AEGON Religare was keen to offer 40% lower insurance at almost same premium. It seems the insurer itself is suffering from a disease: KIDB (Kum Insurance dene ki bimari, the disease of giving less life cover).

Stumped by the fact that an insurance company that has been pushing you to buy a higher cover is asking him to take a lower one, Mr Paul asked a lot of hard questions about what is the salary level required for getting Rs50 lakh SA. AEGON Religare, then made a counter offer 28 April 2012 of Rs40 lakh SA at premium of whopping Rs12,494, which is Rs2,000 (or 20%) more than the premium for Rs50 lakh SA. How did Insurance Regulatory and Development Authority (IRDA) approve such a product feature?

Again, Mr Paul protested against the absurd offering and talked with the insurer over the phone. On 14 May 2012, he received email stating that Rs50 lakh SA can be offered only if he cancels an existing ICICI Pru Life term plan of Rs10 lakh SA expiring on July 2012. He argued that there is no point in cancelling before the date even though he will not renew the ICICI Life policy. AEGON Religare stated that they cannot hold the proposal till that time and hence either the customer pays additional premium for Rs40 SA or cancel his ICICI Pru Life policy to get refund after deduction of medical tests and other charges. Either way the customer is at loss. A classic approach from an insurer: either my way or highway.

The question is whether Mr Paul who earns Rs5.10 lakh per annum is entitled to Rs50 lakh SA from AEGON Religare and Rs10 lakh SA from ICICI Pru Life. The answer is an emphatically 'YyeEsS'. Financial planners talk about life insurance cover being of minimum 10-12 times the annual income. That means at least a total cover of Rs60 lakh. AEGON Religare seems to have their own way of deciding how much life cover the person should be entitled. The ad of course says that you should contact AEGON Religare to find out what is your 'right' insurance amount. Now we know the reason behind it. 'Right' insurance from AEGON Religare does not have to be the right insurance. Check its response - "AEGON Religare Life Insurance is not strict about offering a life cover. Depending on the eligibility of a customer, we offer the correct life cover that is 10 times the annual income in this case".

According to Aviva Life, “For a typical 35 year old with an annual income of Rs5 lakhs, he can opt for a Sum Assured up to Rs 1.1 cr (22 times of the annual income)”.

HDFC Life says, “For a Rs5 lacs salary income , a person can have ATLEAST 10 times coverage (Rs50 lakhs). However, the actual coverage will depend on his/her age and underwriting and previous coverage level”.

ARLI restricting the customer to maximum of 10 times annual salary is poor cover offering.

Mr Paul had declared his existing ICICI Pru Life term plan of Rs10 lakh SA while trying to buy the new plan. Why did AEGON Religare not stop the customer from buying a Rs50 lakh policy? Why was he made to go through medical tests and then bargaining of how much insurance cover he really needed? This leads to a crucial issue. Are the rates from online term insurance bait for customers? Is it less for selling and more for publicity? Many times the customer premium is hiked after medical test without giving the report. Companies have innovative ways of trapping the customer.

The most amazing aspect of the whole thing is, of course, pricing. The premium for Rs40 lakh SA is higher by 20% than the premium of Rs50 lakh SA! This cannot be justified by anyone, including IRDA. It beats the basic logic of risk pricing. According to AEGON Religare, "One needs to understand that an increased cover of insurance would make it difficult for the life assured to pay the life insurance premium. To mitigate that risk it is important to go for the correct amount of life cover". Did anyone tell them at AEGON Religare that its Rs40 lakh SA is 20% more expensive than Rs50 lakh SA in this case? They seemed to have missed the point.