News 168 views March 5, 2020

Block Existing Term Insurance Premium

Term Life Insurance, pure insurance, is the most popular life insurance product which is provided by life insurance companies. Term Life Insurance ensures that your family does not go through a distress situation in handling the financial needs at the least cost in your absence. Now, let us do a further deep-dive about the premiums which you pay for a term life insurance.

Term Insurance

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Past Trend and assumption of Mortality factor

We have always seen a trend of lowest term insurance premiums till now, which is why individuals can buy the term plans effortlessly by paying the lowest premium. For the last five-six years, there has been a considerable rise in the application of term plans. Insurers used the parameter of mortality rate as per the assumption done by LIC and in the absence of proper data and information. Term Insurance Premium is immensely dependant on the possibility theory, that the mortality rate will be about 25% across the average population in India. While the online Term Insurance Premium operates again with an assumption of a 20% rate for an average policyholder. The reason for this gap is because people applying online term plans are well educated and mainly from affluent families with a healthier life duration. And the data from LIC which other private insurers use as an assumption as mentioned above comprises of the entire population in India -both urban-rural, rich as well as poor. Furthermore, the offline cost of term insurance is always higher owing to the participation of intermediaries where 33% is the mortality rate which is taken into consideration. Keeping in mind the point that term insurance buyers are well-off, insurers offered discounts and assumed that the rate of mortality will be lower compared to the LIC data. But the actual scenario was different in reality.

A mismatch between the assumption and actuals

Now with the availability of the actual information and necessary data, it is being observed that the above-mentioned hypothesis is not working due to the rise in the number of claims. Reinsurers, who are the ultimate risk owners of all the insurers, are now thinking to take a mindful decision to increase the Term Insurance premium. And quite obviously, when the reinsurers propose a higher price for the life insurers, the insurance companies will be bound to review and increase the Term Insurance Premiums. Thus, the same will be borne by the buyer of the term policy as a premium.

Term Insurance is treated as the most vital foundation of long-term profitability for insurers and therefore a change in the pricing of term insurance by the reinsurers will have a straight affect on the Term Insurance Premium. And hereafter, insurers will raise the Term Insurance Premium.

Cautious Step by Insurers

Now the question when is this increase in the term insurance premiums will take place? Will this be immediate. Well, the answer is maybe not, as insurers do not want to disturb the investment pattern of the policyholders as this is the time when people invest to get tax exemption before the end of the financial year. So, insurers will be cautious in raising the insurance premiums for term plans.

Table showing the effect of rising in term insurance premiums

Let us see an example for 30 years old, who is a non-smoker, and has taken a sum assured of INR 1 crore with the policy term of 70 years. Assuming a rise of 15% or 40% in the premium rate, the effect on the term insurance premium will be as follow:

Name of the InsurerPlan NamePresent PremiumRates increase @ 15%Rates increase@ 40%
Aegon LifeiTerm125521443517573
TATA AIASampoorna Raksha125081438417511
MAX Life InsuranceOnline Term Plus160441845122462
ICICI PruiProtect Smart181712089725439
HDFC Life3D Plus Life Option199762297227966

Immediate Action from Customers

Keeping in mind the above points, if you are planning to buy term insurance, this is the right time to buy the same as the price is going to increase after the end of the current financial year. Also, the term plan premium, once bought the premium amount remains the same without any change during the entire policy term. You must buy term insurance at a young age as the premium rate will be low keeping in mind your good health at a young age. Also, you may want to opt for online plans rather than offline plans to lessen the cost of insurance. Additionally, you must compare the term plans between the strong life insurance companies by doing some research on the claim settlement ratio and the trustworthiness of the company. Lastly, you must keep in mind that non- smokers get a special premium rate and you must tale advantage of the same if you are in the same category.

Conclusion

From the above study, we can say that this is the time to lock your term insurance plan and you must buy a suitable term plan immediately and take advantage of this time and ensure that you are not missing out on the opportunity to book the term plan at the lowest rate.

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