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Articles 2663 views March 5, 2020
Term Insurance is one of the most popular forms of life insurance, that has become everyone’s hot favourite, thanks to the digital platform. Term Insurance is a pure protection plan where the sum assured is paid only in the event of the death of the insured. As no maturity benefit is paid under this plan so the premium rates are low.
Although, there are lot many insurance plan options under life insurance, however, term insurance plan is popular as they can be purchased online easily and are cheap as compared to other life insurance plans
However, things are about to change soon for term insurance plans as the term insurance premium rates may go up by 15-20 from April 1 onwards. This surge in term plan premium is because the reinsurance rates for term insurance policies have been revised. These revised rates are because the term insurance premium has been constant from the past 5-6 years.
As per the reports, term insurance plans are the best plans for offering the best profit margins in the life insurance segment. Hence, the majority of the insurance providers are offering multiple term insurance plans in their product range. However, reinsurers are of the opinion that current term insurance plans available in the market are not capable of working successfully as the claim registration and pay-outs are high. If this scenario continues, the term insurance premium hike shall be passed on to the customers. this effective change shall be observed from the financial year 2021.
The factors that are leading to the decision of increase in term insurance rate by 15% to 20% from April 1 is due to two major factors and they are as follows:
Thus, the above are the two main factors that are leading to the rise in the term insurance rates. However, LIC who is known for having a higher term insurance premium rate is expected to provide relief to its customers as it is has reduced the term insurance premium rates. LIC is planning to absorb the reinsurance hike rates as it wants to shatter the perception of customers that LIC’s Term insurance policies have a higher premium rate as compared to private insurers. In order to change this perception, LIC Chairman M.R.Kumar said at an event on 7th Feb that LIC wants to change the perception of its customers. He further added that LIC will reduce its premium rates. Talking about the hike in term insurance premium rate Mr. M.R Kumar said that LIC term insurance policyholders will not face much impact of the rise in premium rates.
All the insurance providers and reinsurers speculate that the fear spikes amongst customers that term insurance rates may go up by 15% to 20% from 1st April may result in a decline in the rate of potential buyers. However, the most important aspect still remains that a term plan is designed to provide financial protection only in the event of death and no other benefit can be availed from it. The term insurance plan is not designed to incorporate and provide in any investment or maturity benefit. Term plan will remain a pure protection plan thereby it shall still have the lowest premium amount as compared to other life insurance plans. Apart from being the cheapest available plan in the market term insurance plan is also one of the most efficient life insurance products to be included in your investment portfolio.