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A large number of Indian students now take education loans to fund their graduation and post-graduation studies, often abroad. If the loan is not backed by term insurance, the burden can fall on the parents if the student passes away early.
Policybazaar has announced the launch of a dedicated student term plan in partnership with ICICI Prudential Life and Axis Max Life. Higher-value individual term covers are being offered to students who may not have their own income, with parents’ income being used as proof of financial capacity.
The offering is presently available to those pursuing graduation or post-graduation studies. “Eligible students can obtain life insurance coverage of up to ₹2 crore under the current framework,” says Vaibhav Kumar, head - products, ecommerce and enterprise COE, Axis Max Life Insurance.
Financial waivers allow students to obtain cover without submitting income proof. “Eligibility for a financial waiver depends on the college and the degree being pursued. Insurers may ask for the college admission letter and marksheets from previous years,” says Varun Agarwal, head of term insurance, Policybazaar.
The absence of independent income proof has generally kept students outside the insurance ecosystem, especially for high-value covers. “Eligible students can access term insurance by using their parents’ income as proof of financial capacity,” says Srinivas Balasubramanian, chief of marketing, digital & bancassurance, ICICI Prudential Life Insurance Company.
Term insurance can protect parents against financial liabilities if a student dies young by repaying the outstanding education loan. “Term insurance can create a financial safety net for parents and family members who have invested their savings in the student’s education and growth,” says Balasubramanian.
The premiums are attractive when the person is young and in sound health. “Buying early allows the policyholder to lock in the premium at a younger age, producing substantial savings over the policyholder’s lifetime,” says Agarwal. Meaningful life cover can also be obtained at a relatively low cost. Term insurance premiums at age 35 can be nearly double those at age 25.
“Early coverage can continue through later life stages as financial responsibilities grow,” says Kumar.
Loan-linked group insurance is another option that can safeguard the family’s interests. “Group insurance linked to an education loan can be economical,” says Shilpa Arora, co-founder & COO, Insurance Samadhan.
The cover should be sufficient to clear the education-loan burden. “The term cover should also leave loved ones with a financial cushion for lifestyle and long-term needs,” says Sarvesh Kumar Mishra, chief third-party distribution officer, Generali Central Life Insurance.
Students should also consider taking the maximum sum assured and policy term available to them. “Maximising cover early helps lock in higher protection. And buying for a longer tenure helps lock in lower premiums for the long term,” says Kumar. The cover should ideally last until between age 60 and 70.
A critical illness rider can provide a benefit on specified illnesses pays a lump-sum amount. “The critical illness payout can serve as a form of income replacement,” says Agarwal.
A waiver-of-premium rider is another desirable rider. “It can take care of future premiums after a specified disability,” says Agarwal. An Accidental Death and Disability rider can also enhance the scope of the base term cover.
Plan before going abroad
Buying while still a resident in India eases underwriting. “Underwriting can be simpler while the student is still a resident in India,” says Sarvesh Kumar Mishra, chief third-party distribution officer, Generali Central Life Insurance.
Most Indian term insurance policies provide global coverage. “A person can buy term insurance from India even when the cover is intended to apply overseas,” says Agarwal.
A student who is already abroad may not be able to undergo the physical medical examination normally required for term insurance. “Video medical examination is available as an alternative in such cases,” says Agarwal.
The cover may not apply in a a small number of countries. “Most major destinations, including the United Kingdom (UK), the United States (US), Europe and Gulf Cooperation Council (GCC) countries, are covered,” says Agarwal. Premiums and policy terms can vary according to country-specific risk assessment.
Students should also plan for regular payment of premium. “An Indian account with a standing instruction can help prevent the policy from lapsing after the move,” says Mishra.
Be transparent with disclosures
Applicants should disclose pre-existing diseases and medical history. “Illnesses that run in the family should be declared,” says Mishra.
“Previous injuries, hospitalisations and surgeries should be disclosed. Known medical conditions such as asthma, high blood pressure or high cholesterol should be disclosed,” says Agarwal.
Lifestyle details also matter. Alcohol consumption and smoking must be disclosed. Students going abroad should disclose the destination honestly. “The country to which the student will travel should be declared,” says Arora.
The applicant should also disclose that the loan is an education loan. “The education-loan tenure should be disclosed honestly,” says Mishra.
Arora adds that the applicant should disclose that the student is not generating income.
Any adventure sport taken up by the student should also be declared. “The education-loan amount should be mentioned because it explains the cover being sought,” says Mishra.
The co-applicant is the natural choice for being the nominee because the education-loan liability would fall on that person. “The loan liability would come to the co-applicant who gave the guarantee,” says Arora.
Parents usually co-sign the education loan, so the debt would fall on them if the student passes away. “Naming the parents as nominees puts the payout in the hands of the people carrying the loan liability,” says Mishra.
If both parents have jointly taken the loan, each parent’s share should be mentioned clearly.
A married policyholder can allocate different percentages of the benefit among financial dependants. “The nomination can be changed later as the policyholder’s circumstances change,” says Agarwal.
Premiums should be compared across insurers. “Pricing becomes especially important when insurers have broadly satisfactory claims records,” says Agarwal.
For a 19-year-old student from Delhi, who is a non-smoker, the annual premium is ₹5,262-5,266 for a life cover of ₹50 lakh for a 40-year policy tenure offered by ICICI Pru and Axis Max Life.
Keep the policy claim-ready
After buying, give the nominee a copy of the policy for safekeeping. “The nominee should know that the policy exists and should have access to the relevant policy documents,” says Agarwal. Students going abroad should keep a standing instruction on an Indian account for premium payments.
Do not let anyone fill the proposal form on your behalf. “Students should not skip the medical test merely to save a few days,” says Mishra.
Once the education loan is closed, review protection needs before discontinuing the policy. “The family may still need financial security for other life goals and obligations after the loan is closed,” says Mishra.
• Long-term claim settlement ratio
• Claim value paid, not just number of claims settled
• Premiums across insurers, especially those with comparable claims records
• Complaint ratio and solvency ratio
• Free health check-ups and wellness benefits
• Additional underwriting requirements, if any, after status changes to NRI
• Possible premium loading or policy-term changes after relocation abroad
