Is a Term Insurance Policy Portable? You Should Know

2023-03-01

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Having an insurance plan has become an essential financial tool today. It acts as a cushion against the various uncertainties that can adversely affect your life.

The most common type of life insurance is a term plan in which you can get various benefits from your insurance provider. In addition to the guaranteed sum offered after you to your nominee, there are now numerous benefits that can be included in the same policy.

Options such as adding a spouse under the same plan, a refund of premiums, entire life coverage, 40 critical illnesses cover, etc., are available for you to include in your term plan.

While most plans offer cheap premiums, certain insurers may have policies that do not align with your protection goals. You can use the term insurance portability option in such a situation.

Read along to understand term insurance portability better.

Key Takeaways

Term insurance portability empowers you to upgrade your plan.
Portability allows for switching insurers without losing benefits.
Pre-existing conditions can impact eligibility for portability.
A portability request must be made 45–60 days before renewal.
Cheaper premiums may result in limited coverage options.

What is Term Insurance Portability?

Term insurance portability refers to the right you have as a policyholder to switch your insurance or insurance provider. It means you can change your insurer as per your suitability without the loss of accumulated benefits or even the paid premium amount. All those benefits and paid amounts are carried forward in the new plan. It can help protect your interests and encourage a fair and competitive market. This feature aims to prevent you from being "captive" to the contract.

How Does Term Insurance Portability Work?

Term insurance portability permits you to maintain coverage even if your insurer's benefits change. For instance, your benefits may change if you quit work, your spouse's coverage ends, you get separated, or your insurer lowers the coverage. These things are referred to as "triggering events."

If you switch your insurance, you'll receive a renewable term insurance policy that will last as long as you make premium payments or until you reach the maximum age limit defined by the insurer. Depending on the alternatives offered by your insurer, you can pay your premiums annually or as per the frequencies available with the life insurer.

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Benefits of Term Insurance Portability

Putting the policyholders’ interests first, IRDAI has suggested introducing a protective measure that increases their flexibility in choosing a plan best suited for them. Portability gives the policyholders an option to switch from their insurer and explore better offers. The following are some potential advantages of purchasing a portable term insurance policy:

Financial security for your dependents: The insurance money may take care of something as basic as your family's monthly expenses in your absence. Your family can consider fulfilling other significant goals, like further education and weddings, with the financial support they get from the term plan after you. Portability will help you keep the accrued sum gathered over the years.
Seamless coverage for medical contingencies: Every household should be prepared for medical emergencies. Some term insurance policies offer protection for terminal illnesses and other life-threatening medical conditions. Canara HSBC Life Insurance Young Term Plan offers coverage against 40 listed critical illnesses to help you financially in case you are diagnosed with any of the terminal diseases. With the portability option, you are also eligible to customize the new policy as per your suitability.
Protection for your assets: Mortgages you take out while you're healthy could cost your family a lot of money in your absence. with a portable term insurance plan, your family can be assured that your debts will be paid off without having to sell any family assets or accrued wealth.

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How to Port a Term Insurance Policy?

Any policyholder may request the transfer of their current term insurance plan as long as it is maintained and premiums are paid for immediately. Here is a stepwise guide on how you can port your term insurance policy:

Step 1: Submit a written request to your insurer regarding portability at least 45 days before the policy renewal date.

Step 2: The submission will be followed by some paperwork, which includes a portability form and a proposal form from the new insurer.

Step 3: There will be a verification request between the new and the former insurer for your medical records and other crucial information shared with the old insurer.

Step 4: Upon receiving such a request, the former insurer needs to provide all the pertinent information to IRDA India.

Step 5: After they have all the information they need regarding your insurance, the new insurers will determine if a new policy should be provided to you or not. This process is referred to as policy underwriting. if they decide to go ahead, they have to provide you with a new policy within 15 days.

Step 6: A portability certificate will be issued by the new insurer once both insurers are through with the comparison of their policy terms.

Term Insurance Portability in India

A proposal to provide portability from one life insurance plan to another is being considered by the Insurance Regulatory and Development Authority of India (IRDAI), the statutory body responsible for overseeing the insurance industry in India. This implies that those currently insured by a life insurance policy may switch to a different insurance company without giving up their current policy.

As of now, only health insurance plans can be moved under IRDAI regulations from one insurance provider to another. Term insurance coverage cannot be transferred. Therefore, a surrender fee must be paid if someone wants to cancel their current life insurance policy before it matures. This fee may include up to 70% of the premiums paid throughout the whole policy period.

India does not currently have any rules that permit the change from group life insurance to a personal plan regarding term plans.

What to Consider Before Porting Your Term Insurance?

Here are the 5 things that you should tick off before purchasing your term insurance.

1. Medical History

If you have an existing pre-existing disease or frequent hospital visits, the new insurer may reject your portability. Generally, insurance companies ask individuals ( above 45 years) to conduct medical tests. If medical reports show any conditions such as high blood pressure or diabetes, the portability request might be rejected.

2. Waiting Period

When you are porting your term insurance, make sure your waiting period is completed, otherwise, it might be waived off. However, if you completed the partiality, you will claim the benefits under the new policy.

3. Sum Insured

At the time of portability, ensure that to quote a reasonable insured amount. Applying for a high sum insured may alarm your new insurer. Let's understand with the help of an example:

Suppose you have been renewing your health insurance policy with a sum insured of ₹4 lakh for the past three years. Now, you choose to port it to another insurer and increase the sum insured to ₹5 lakh. In this case, the portable sum insured, which is the amount for which waiting periods are already completed, will be ₹4 lakh. The total sum insured under the new policy will be ₹5 lakh. However, if you are hospitalised for a pre-existing illness during the waiting period with the new insurer, you will be eligible for coverage up to ₹4 lakh only. The additional ₹1 lakh will be available after you complete the waiting period for the increased amount.

4. Age-Related Challenges

As health deteriorates, many insurers are afraid to approve portability requests from senior citizens. The new insurer that accepts may impose a higher premium, including a co-payment clause, making the policy more expensive.

5. Premium Vs. Coverage

Many people consider porting their health insurance policy to enjoy lower premiums. However, due to lower premiums, insurers often compromise on coverage. Over time, this limited coverage may not meet your healthcare needs, leading to higher out-of-pocket expenses. Therefore, before porting your policy for a lower premium, always review the extent of coverage provided to ensure it aligns with your long-term health requirements.

Did You Know?

Insurance companies are expected to pass on the credit gained by the insured for pre-existing condition(s) in terms of waiting period

Source: Economic Times

Common Mistakes to Avoid When Porting Term Insurance

Term insurance portability is a tricky game. It is important to know about pitfalls that help you make informed decisions for you and your loved ones.

Filing a late Portability Request

The first and foremost mistake policyholders make to not raising the possibility timely. Generally, you have to issue a portability request within 45-60 days before their existing policy expires. Most insurers will not accept any last-minute delays.

Porting to Health Insurance with Limited Benefits

The sole purpose of portability is to switch to a better policy with great health benefits and value addition. However, most of the policyholders compromise it with the cheaper rates. While cost-saving is a great choice but you should not settle for a limited policy with restricted benefits. You have to do a lot of homework before switching to the new policy.

Not Utilising Your Accumulated Bonus.

When porting term insurance, Don t forget to claim the bonus and choose a sum insured equal to your previous cover plus the bonus. This helps avoid additional waiting periods and maximises your benefits without losing your accumulated rewards.

Not Disclosing Pre-existing Diseases

When you are porting your term insurance, don't forget to disclose pre-existing diseases. It affects the term insurance under the new policy. Let’s understand with the help of an example

Imagine you’ve already completed a 2-year waiting period with your current health insurer. Now, you’ve been diagnosed with type-2 diabetes and want to switch to another insurer that also has a 2-year waiting period for pre-existing conditions. If you don’t tell the new insurer about your diabetes while porting, they won’t cover any hospital bills related to it. Plus, you’ll have to serve the waiting period for diabetes again, as per the new policy rules. So, it’s always better to be honest about your medical condition to avoid claim rejection later.

Conclusion

Although term plan portability is a good option that gives you flexibility among various options, it is not available in India yet. Thus, it is very important to be sure of the type of term plan you buy. Financial emergencies should not make your family go bankrupt and seek help from relatives after you. Purchase the appropriate term insurance plan because it is essential and can help you reduce your tax liability as well.

Glossary

Term Insurance: A life insurance policy that offers financial coverage for a fixed period in exchange for regular premium payments.
Sum Insured: The total amount an insurer agrees to pay upon claim, based on the terms of your insurance policy.
Pre-existing Disease: A health condition that existed before buying the insurance policy or switching to a new insurer.
Waiting Period: Timeframe during which certain illnesses or benefits are not covered after buying or porting a policy.
Policy Underwriting: The insurer’s process of evaluating your health, age, and risk profile to decide policy terms and premiums.

FAQs

Insurance portability could be good for you as it allows you to avail a better policy without even affecting your waiting period. it can be very useful when you realise that the terms of your policy are not the best for you and you might get better offers elsewhere.

IRDAI gives you the right to port your policy to any other insurer of your choice, allowing you legal flexibility. The rule states that your new insurer “shall allow for credit gained by the insured for a pre-existing condition(s) in terms of waiting period.”

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.