How Does Term Insurance Eligibility Work?

You may be aware that each bank sets specific limits related to age, income, etc. for debit and credit cards. For instance, Bank 'A' may stipulate that only people over the age of 21 can apply for a debit and credit card. Another bank, say Bank 'B,' may impose age and income restrictions, such as allowing only people over the age of 18 and with a monthly salary of at least Rs. 25,000 to apply for a debit or credit card. You will not be eligible to get a debit or credit card if you do not meet these eligibility requirements.

Similar to this, a term insurance policy, too, has certain eligibility criteria that need to be met before you can purchase it. 

Let’s learn about these eligibility criteria in detail - in this article.

Term Insurance Eligibility Criteria

1. Age eligibility

The minimum age requirement for all term insurance policies is 18 years. The maximum age limit ranges between 60 to 65 years, depending on the type of product you purchase.

2. Income eligibility

Income eligibility criteria may vary across insurers. With some insurers, you can buy a term plan if your income is Rs. 5 Lakhs or more,  whereas there are insurers who allow you to opt for a term plan even if your income is lower than that. 

Your income also impacts the maximum sum assured you can opt for. Based on your income and the age at which you buy the policy, the insurer will calculate the maximum cover you’re eligible for. Usually, this is done by multiplying your income by certain factors (based on your current age) - such as 25X or 20X. And if you already have an existing life insurance policy, the cover amount of that policy will be deducted from the term cover you’re eligible for.

For instance, you’re 25 and have an annual income of INR 20 Lakhs. So, the maximum term insurance cover you can opt for can be calculated as - 20 Lakhs X 25 = INR 5 Crore (Taking 25X as the factor chosen by the insurer for that age bracket). 

Now, say you already have a life insurance policy of INR 1 Crore. So, the maximum sum assured you’re eligible for will be INR 4 Crore (5 Crore - 1 Crore).    

3. Educational qualification

Generally, the minimum education qualification required to purchase a term insurance policy is graduation. However, some insurers also allow non-graduates to opt for a term plan.

4. Location of residence

Insurers have several sets of pin codes for various insurance plans which they integrate at their backend systems. The list of pin codes is dynamic and keeps on changing. But - you can check the eligibility for your specific pin code, by entering it in the form when prompted. Financial advisors have this list of pin codes too. So, if you’re buying the policy through a financial advisor, you can ask them for this list. 

Generally, all of the Tier1, Tier2 and most of the Tier3 cities would be included by the top insurance companies - but you should always check before going through with your application. 

5. Occupation

Mostly, professionals, self-employed, and salaried individuals are eligible to buy term insurance. A few insurers also allow housewives and small business owners to purchase term insurance. Insurers, however, might impose restrictions based on the type of occupation - they ask a question about this in the proposal form. 

If your job is too risky for the insurer to cover - for instance, if you work in an underground mine, construction, chemical factory, etc., they might reject your policy. This, however, majorly depends on the underwriting.

6. Maximum maturity age

While some insurers sell term plans with a maximum maturity age of 85 years, some sell plans with a duration of up to 99/100 years as well. Such long-term plans are marketed as ‘Whole life plans’. 

7. Income proof documents

Term insurance policy is issued with the assurance that you will be able to pay the premiums required for the entire policy tenure or premium payment tenure (in case you opt for Limited Pay). To ensure the same, insurers will ask you to submit documents that prove your source and type of income. Following is a list of documents that you can use as proof of your income. You should have at least one of the below income proof documents to get the policy issued.

• ITR - Last FY / Last 2 FY
• Form 16
• Salary Slips - Last 3 months
• Salary Certificate
• Employer's Certificate
• Audited Company Accounts - Last FY
• Latest Employment Contract Letter
• Bank Statement - Last 6 months

Please note: This is a generic list of documents. Different insurers will ask for different sets of proof, for a different number of months/years. This will depend largely on your occupation. 

8. Medical history 

Your term insurance premiums and overall sum assured are dependent heavily on your current health as well any medical risks you might face in the future. You will have to undergo a medical examination before the issuance of the term insurance policy. If the reports indicate that you’re a higher risk to the insurer, they might not issue you a policy at all. And if another insurer issues you a policy, it will be with a massive amount of loading charges. 

These were the eligibility criteria for term insurance policies, in general. The insurance company will issue you a term plan only if you fulfil all of the requirements they have as part of their policy. 

If you have any further questions related to term insurance eligibility in India, you can post them on the Beshak Insurance Forum and get answers from insurance experts within 6-8 hours.