Term insurance has traditionally been associated with people who earn, have dependants or carry financial liabilities. But a few insurers are now offering term cover to students as young as 18.
At first, this may seem unusual. Students typically have no income or dependants. But the equation changes when higher education involves a large financial commitment, whether through an education loan or family savings. This has led to the emergence of student-focused term insurance, offering life cover to young adults while they are still studying.
An education loan is not a prerequisite. Students aged 18-25 qualify for it as long as they meet underwriting criteria.
But does every student need term insurance? How much cover can they get without an income? How are they underwritten? And does it make sense to buy a policy before starting a career?
Market takes shape
Axis Max Life Insurance, ICICI Prudential Life Insurance, HDFC Life and Tata AIA Life Insurance have introduced term insurance plans that can be bought by eligible students. These include Smart Term Plan Plus, iProtect Smart Plus, Click 2 Protect Supreme Plus and Sampoorna Raksha Promise, respectively.
Bandhan Life does not have a product specifically labelled as student term insurance, but it offers term insurance to eligible students. However, being a graduate is its minimum eligibility requirement, while other insurers may offer cover to undergraduates as well.
“Our top advisors brought this proposition to us. We found that parents often drive this need, given the heavy financial burden of higher education and the large number of students taking education loans. Just as any liability needs risk coverage, we explored offering reasonable term insurance to students,” said Vaibhav Kumar, head of products, e-commerce and enterprise COE at Axis Max Life Insurance.
Around 1,000 students have bought term insurance in the last three to four months from our platform, according to Varun Agarwal, head of term insurance at Policybazaar.
What it covers
Student term insurance is no different from regular term insurance. The insurer pays the death benefit if the policyholder dies during the policy term.
These plans too come with additional frills that can vary from one insurer to another. These include personal accidental cover, payout on terminal illness, premium waiver and wellness benefits.
“When comparing insurers, look at two things: trust markers such as claim settlement ratio, complaint ratio, total claim amount settled and solvency ratio. And value-for-money markers such as product features and premium,” said Agarwal.
“Some plans provide free benefits at no extra cost: 100% payout on terminal illness, waiver of future premiums on terminal illness, the option to defer 12 months of premium, and wellness benefits such as annual health check-ups, doctor teleconsultations, cancer screening and discounts on pharmacy and lab tests,” he added.
Underwriting students
Term insurance requires financial and medical underwriting. Most students in the 18–25 age group have little or no personal income. Insurers offering student term insurance have therefore developed alternative ways to assess them.
Educational credentials play an important role here.
“Financial underwriting is not required if the student is studying in one of the top colleges in India and abroad. And if the student is not studying in those top colleges, then we actually use surrogates such as parents' income as an underwriting mechanism,” said Kumar of Axis Max Life.
The student's education and academic records can help establish eligibility for a certain level of cover, say ₹25-50 lakh. For higher sums assured, the insurer may look at the family's income and financial profile.
Medical underwriting is largely digital, with video-based medical assessments being used. Physical medical examinations may be required depending on the sum assured and health risks diagnosed during online medical assessment.
“We know students are reasonably healthy and may not prefer visiting medical centres. So, up to a reasonable sum assured, we offer video medical assessment where a doctor interacts with the student on a video call. This makes onboarding more frictionless and aligns with Gen Z’s preference for seamless digital experiences,” Kumar added.
Further, while education loans are one of the clearest use cases for student term insurance, having a loan is not necessarily a prerequisite. The rationale is broader.
“The insurer may consider the student's educational background, future earning potential and family financial profile while deciding eligibility and the amount of cover. However, students who have completed their education but remain unemployed for an extended period may not qualify for the insurance,” said Maneesh Mishra, chief product and marketing officer, Bandhan Life.
The early-buyer case
The biggest argument in favour of buying early is cost.
“Buying while you're still studying locks in a premium 20-30% lower than what you'd pay after 25-26 years of age. It would save you around 20% on the total premium over lifetime,” said Agarwal.
The other advantage is insurability. A young person is more likely to be healthy and qualify for standard underwriting. If a health condition develops later, buying a new policy could become more expensive or difficult.
However, this does not mean that every 18- or 20-year-old needs a large term cover.
Term insurance is primarily meant to protect against the financial loss caused by the death of the insured.
“This makes sense when the student is about to take an education loan or has family members who depend on them financially. That way, in a worst-case scenario, they don't end up leaving their family with the responsibility of clearing their debt. But it isn't necessary if you aren't taking a loan and don't have any dependents,” said Abhishek Kumar, a Sebi-registered investment advisor and the founder of SahajMoney.
There is also the argument of building good financial habits early.
“We see so many students wanting to invest in SIPs. Just as investing and saving are important, so is protection. It’s the next logical building block,” said Kumar of Axis Max Life.
Cover may fall short
A term plan bought while studying may not remain adequate as financial responsibilities grow.
What happens when the student's financial responsibilities increase as they get married, have children, take a home loan or become responsible for ageing parents? The term cover bought as a student may then prove inadequate.
“There is no problem in having multiple term policies. The total coverage should not be more than your human life value, so always disclose all the insurance you have before buying a second or third policy,” said Kumar of SahajMoney.
Can student term insurance be used as collateral for an education loan?
“A student may buy a term plan independently, but that does not automatically mean the bank will accept it as collateral or as security for an education loan. Banks offer credit life insurance for the same,” said Mishra.
Credit life insurance is a variant of a term cover designed to cover a borrower’s outstanding loan liability in case of death. The coverage typically reduces over time as the loan is repaid. The money goes to the lender unlike student term insurance where the coverage will go to the family.
While student term insurance is being positioned as an early start to financial planning, the basic purpose of life insurance remains protection.
It is most relevant when someone has dependants who may need financial support or liabilities that could fall on the family in their absence. Students with either of these needs may consider buying life cover early; for others, it may not be necessary at this stage.