Traditional life insurance payment methods
Premiums for life insurance in India were paid in advance right from the time of policy purchase. IRDAI has issued that the premiums are required to be paid only after the policy has been approved by the insurer. This was issued in benefit of the policyholder.
Under the traditional insurance payment framework, you can pay premiums in the following ways.
Online mode:
While making a policy purchase, the premium can be paid digitally through internet banking, through debit, credit cards, via UPI etc.
Offline mode:
The life insurance premium can also be paid in offline mode, either by physically visiting the branch office or through agents. The offline payment can be made by cheques and demand drafts or also by cash.
What makes Bima-ASBA different?
Introduced by IRDAI to address the gaps in traditional payment methods in insurance purchases, Bima-ASBA is a UPI-based payment mechanism. In this method, following the insurer’s request and corresponding authorisation from the applicant, the premium amount stays blocked in his/her account and gets deducted only after the policy gets issued.
Here’s where the Bima-ASBA option differs from the traditional insurance payment.
- Unlike traditional payment systems, Bima-ASBA doesn’t require immediate payment of premium at the time of policy purchase, when its approval is still awaited.
- Instead, upon authorisation of the applicant, the premium amount stays blocked in his/her account for the underwriting phase for up to 14 days. Within this period, the said amount is not available for other transactions but continues to earn interest.
- The final premium amount after the underwriting process gets deducted from the blocked amount only after the approval and consequent issuance of the policy.
- In case the policy gets rejected or cancelled, or the stipulated 14-day period is over, the blocked amount gets released and is available for other transactions, making the refund easy, smooth, and quick.
- Under the Bima-ASBA framework, the policy applicant keeps getting regular and real-time updates of the blocking and unblocking of money or the deduction of premium, making it a transparent process. Same may not be available in the traditional payment methods.
Comparison Table: Bima-ASBA vs Traditional Methods
Comparison tables are always helpful when you want to understand the difference between two methods at a glance. Here’s a similar attempt for Bima-ASBA vs traditional methods
Payment Type
Functionalities | Bima-ASBA | Traditional payments |
|---|
Payment mode
| UPI
|
Can pay using internet banking, credit or debit cards, UPI, cheque, demand drafts or cash.
|
Premium payable
| After policy approval and issuance
| Premium payment post communication of decision & acceptance of proposal by insurer
|
Amount blocking
| For underwriting phase or 14 days, whichever is earlier
| NA
|
Payment refund if policy is denied
| Within 1 working day
| More than 1 day
|
Notification of policy issuance
| Real-time update
| Confirmation after policy approval
|
Unexpected Charges
| No scope due to amount blocking
| Can result from transaction failures
|
Which one should you choose?
As per the IRDAI circular, it’s now mandatory for the insurance companies to include Bima-ASBA as a premium payment option since March 1, 2025. However, for the applicant it’s optional. He/she can choose either Bima-ASBA or any of the available traditional methods to pay the first premium to complete the policy purchase.
The choice of payment method may depend on the policy applicant’s convenience and feasibility. For example, if an applicant looks for a transparent payment mode and a smooth refund, opting for Bima-ASBA may be a wise bet. But if someone is not comfortable with UPI payments, picking traditional payment methods instead may be better. This is because Bima-ASBA option is available only through UPI as of now.
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