Will there soon be an increase in premiums for the term insurance plan?
News on the increase in term plan premiums: If you are looking to buy a term insurance plan, you may need to hurry if you want to save on costs as well. The premium for term insurance plans could soon increase if global reinsurers increase their rates. “Yes that’s true. Some reinsurers should increase rates. However, this information remains confidential and is only made available to the public once it is finalized and deployed,” said Varun Gupta, Chief and Appointed Actuary, Bharti AXA Life Insurance.
The increase in term plan premiums is attributed to an impending rise in reinsurance rates by global reinsurers. âDiscussions with reinsurers over re-pricing are currently underway and the amount of the price increase has not yet been finalized. The re-pricing is expected to take effect from the fourth quarter of fiscal 22, âsaid Niraj Shah – CFO, HDFC Life.
A portion of the lives written by life insurance companies is passed on to reinsurers who bear the risk for which insurers pay them a premium. When reinsurers increase reinsurance rates, there is a subsequent increase in the premium rates they have to offer to potential buyers of temporary plans. âWe will continue to follow a nuanced risk-based pricing approach and increase customer prices in line with emerging experience. We believe protection is a long-term, decades-long opportunity in India given the level of underpenetration and the gap in protection, âShah adds.
The impact of Covid-19 claims could be one of the reasons why term plan rates need to be revised by insurers. âDue to several factors, including Covid-19, the actual amount of claims settled was higher than expected. Therefore, keeping in mind future macroeconomic factors, the underlying mortality rate, as well as other criteria, some reinsurers have decided to revise rates, âsays Gupta.
However, once reinsurers increase their rates, there may not be an immediate or corresponding impact on term insurance premium rates in India. âThe decision to increase contribution rates depends on the strategy of the company. Insurers can increase premiums, absorb the increase in premiums by reducing their margins and can also reclassify the product to achieve business results based on their strategy. The extent of the variation in the premium will therefore depend from one insurer to another, âexplains Gupta.
A term insurance plan provides life coverage up to the period chosen by the policyholder. In the event of death at any time during the term of the policy, the sum insured (amount of life cover) is paid to the nominee, while in the event of survival of the term of the policy, there is no no value at maturity. Being pure protective coverage, term plans are low cost, high coverage plans.
But, how competitive are the premium rates for term insurance plans compared to other countries? âThe prices for protection in India are much lower than in some developed countries with higher quality health care facilities and longer life expectancies. Historic rate hikes in India have lagged the growth in inflation. We should expect pricing and underwriting standards to evolve as geographic and demographic coverage expand over time. We continue to engage with our reinsurers, refine our underwriting practices, deploy new technologies such as deep learning underwriting models and address the protection opportunity through our Group (Credit Life) platform outside of sole proprietorship, âShah said.
âTerm insurance is typically purchased for a longer term of 25 to 40 years as the policy term. In such a scenario, it makes perfect sense to avail the plan at lower premiums in case you plan to purchase coverage for yourself. Once you buy a term insurance policy, the premiums do not change during the life of the policy. The monetary savings can be quite large over a period of 25 to 40 years. I would strongly recommend term insurance coverage up to 20 times your current annual income at the earliest, âsays Deepak Yohannan, CEO of MyInsuranceClub.
If the term insurance premium rate is revised, it may not be the same across all strata, as the actual revised premium rates will differ depending on age groups, gender, sum insured chosen, etc. It is important to note that even if there is an increase, there will be no impact on existing policyholders. âLife insurance premiums are blocked from the day the insurance policy is taken out. Therefore, existing customers or customers looking to purchase insurance in the next few days do not have to worry about increasing premiums, as the amount of their premiums they are currently paying will remain stuck and will not be. not affected by reinsurers’ decision to increase premiums, âGupta says.
Once purchased, the premium remains fixed for the duration of the policy. Any future change in the premium has no impact on the expenses of the policyholder. Purchasing a term insurance plan before the increased rates take effect will allow you to keep the rates for the duration of the policy.
Temporary plan coverage is a must for anyone with dependents and procrastination should be avoided when purchasing them. Ideally, one should get life coverage of around 15 times one’s net annual salary and continue to review it every five years. Once you have adequate term insurance coverage, start saving for your long-term goals for worry-free financial planning.