Does Portability Work for Life Insurance?

A life insurance policy goes a long way in securing the future of one’s family and can help the policyholder lead a financially worry-free life. The Insurance and Regulatory Development Authority of India (IRDAI monitors life insurance products and providers. The IRDAI has recently initiated a discussion on introducing portability in life insurance. This has led to insurers, agents, and policyholders having conversations on how portability may function within the life insurance sphere. While some believe that it may lead to better policies and benefits for the policyholder, others hold that the nature of a life insurance policy is such that portability may be difficult to administer. Let’s have a detailed look at the topic.

What is life insurance and how does it work? 

To conclude on whether portability may work in life insurance, one needs to know what life insurance is and how it functions. It is an insurance policy that provides a life cover or a sum assured to the beneficiaries (chosen by the policyholder) in the unfortunate event of the life assured passing away. The policyholder has to pay an agreed-upon premium amount to ensure the continuation of the policy. The sum assured is provided to the beneficiaries only if the unfortunate event has occurred in a way covered by the policy. 

Now that you know what life insurance is, let’s see whether the concept of portability work in a policy that functions in the above-mentioned manner.  

Policies may need standardization 

Different life insurance providers offer varying features in their life insurance policies. Though a life insurance premium calculator may estimate the same premium amount for most insurers, the actual premium often varies depending on multiple factors. This is because each insurer has its unique underwriting principles, business models, and risk assessment approaches. If a policyholder is switching their policy from one insurer to the other, experts say it could lead to discrepancies in the management of the same, as the new insurer may not have the same features as the older one. While this may still be relatively possible in simpler term plans, more complex life insurance products, such as endowment plans or money-back plans, may prove to be trickier to port. One way these issues can be avoided is by standardizing more life insurance products. This can pave an easier way for portability, experts say. 

Mismatch between funds and benefits 

Another issue to consider when introducing portability to life insurance, according to industry veterans, is the expenses that many insurers undertake for a policyholder at the beginning or the later stage of the plan. Since most life insurance plans are long-term, the funds invested and expended by the insurer are also done so with a long-term approach. If in this scenario, the policyholder switches insurers, then there may be issues with funding. 

Therefore, some experts say that portability is best achieved when there is a short span between the time premium is received and the time the policyholder benefits from a payout. General insurance policies, such as health insurance and motor insurance, work best for portability. 

Increase in competition and better customer satisfaction

Those who are positive about introducing portability in life insurance are being so, mainly because of one reason – the competition it will give rise to and consequently, the increased customer satisfaction. With the option of portability open to them, policyholders will be looking out for better services, features, lower premiums, higher returns, and so on. This would lead to an increased focus by insurance companies on customer satisfaction and retention. 

A buyer may also buy a life insurance policy with the same outlook – that they can switch their policy if they are not satisfied with the one they are buying.

In conclusion 

The concept of portability in life insurance has its merits and demerits. The IRDAI will be considering the discussions had by major industry veterans before making a final decision. Hopefully, it will lead to betterment for the policyholders as well as the insurers. 

Portability may or may not be launched in life insurance. Regardless, you should make sure that you buy the right life insurance plan. So, do remember to plan your expenses and goals, use a life insurance premium calculator, choose a reliable insurer, and consult an expert before going ahead. Thank you for reading! 



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