Life insurance is one of the most important risk mitigation tools that everyone should get as soon as they become eligible for it. Life insurance financially supports the dependent family members of the insured. So, you must stay adequately insured during every stage of your life. The more you delay in getting a life insurance coverage, the costlier it gets because a higher age results in a higher premium for life insurance. However, if you have already taken a life insurance policy, its premium usually remains the same throughout the policy period.
The premium rate is usually revised for policy buyers of all age categories. If you are planning to get a life insurance cover for the first time or are looking to enhance the size of the existing cover, you should not delay because the premium for life insurance policies may become costly now. Here are some key factors that are going to impact the life insurance premium.
Due to the sharp rise in claims in the last few years
The life insurance premium is normally decided based on the life expectancies of the insured. However, during the Covid pandemic, a sharp rise in claims was witnessed by the entire insurance industry. Due to higher-than-normal insurance claims, the reinsurance companies are now left with no choice but to increase the premium levied on the insurance companies and in effect the insurance companies are expected to transfer the cost on the customers by increasing the premium for life policies.
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Due to ageing, changes in lifestyle and habits
A large number of people are now working from home which leads to a sedentary lifestyle and invites ailments like blood pressure and diabetes. Deterioration in health conditions or habits like smoking, consuming alcohol, etc. can result in an increase in the premium for your life insurance policy. So, if you have not yet taken a life policy and living a sedentary lifestyle, your life insurance premium may go up. Also, with an increase in your age, the policy premium rate also goes up when you are buying a new insurance policy.
Increasing the cover size at a later age
Getting a life insurance cover at an early age can cost you lesser than buying a policy at a later stage in your life. Sometimes, people get a life insurance policy based on their current financial needs and without estimating their expected financial obligations in the future and later they feel the life cover to be inadequate. So, if you find your existing life cover to be inadequate, getting an additional life cover can get costlier if you delay the decision further.
The Union Budget 2023 proposes to tax income from traditional insurance policies, other than unit-linked products (ULIPs). Policies with premium above Rs 5 lakh in a year is likely to impact growth of life insurance companies and their margins. It will also hit demand for high-amount policies to avail tax benefits. The new rule will come into force from April 1.
If you have planned to make a big-ticket investment in the traditional life insurance policy (except ULIP), then it’s important for you to know the changes in the budget and get the policy till March 31, 2023.
What should you do?
If you are an existing life policyholder and not looking to enhance the cover size, you need not worry and continue to pay the premium without any delay. If you are an existing policyholder but planning to enhance the cover size, you should act fast because the premium may increase significantly in the near future. If you have not yet purchased the life insurance cover, you should immediately get the appropriate policy and lock the premium at the current applicable level.
While buying an insurance policy for the first time or enhancing it, beware of inflation and the rise in the interest rate on loans. Higher interest on loans means higher EMIs and an increase in your debt obligation simultaneously increasing your insurance requirement. So, do your maths before deciding the size of the insurance cover. While choosing the insurance policy beware of factors such as claim settlement ratio, add-ons, tenure of the cover, etc.
Adhil Shetty, CEO, Bankbazaar.com, says, “A life insurance policy gives you and your family financial security, and this security is possible only if you choose the correct sum assured. So, whatever you do, ensure that your sum assured is ample before you buy a policy.”
Finally, remember that life insurance is an essential financial tool, and you need it irrespective of the premium being costly or cheaper. So, better make an early move and ensure the financial security of your dependent family members.