Term Plan Premium Increase News: If you are looking to buy a term insurance plan, you might have to hurry up if you also want to save on cost. The premium of term insurance plans may soon witness a hike if the global reinsurers increase their rates. “Yes, it is true. Some re-insurers are expected to increase the rates. However, such information is kept confidential and only made available to the public once it is finalized and rolled-out,” informs Varun Gupta, Chief & Appointed Actuary, Bharti AXA Life Insurance.
The term plan premium increase is attributed to an impending hike in the re-insurance rates by the global re-insurers. “Discussions with reinsurers on re-pricing are currently on and the quantum of price increase is yet to be finalized. Re-pricing is expected to kick in from Q4 FY22,” says Niraj Shah – Chief Financial Officer, HDFC Life.
Some portion of the lives underwritten by life insurance companies is passed on to the re-insurers who bear the risk for which the insurers pay a premium to them. When reinsurers hike the reinsurance rates, there is a subsequent increase in the premium rates that they have to offer to the potential buyers of term plans. “We will continue to follow a nuanced risk based pricing approach and increase customer prices in line with the emerging experience. We believe that protection is a long term and multi decade opportunity in India given the level of under-penetration and protection gap,” adds Shah.
The impact of Covid-19 led claims could be one of the reasons for term plan rates to be revised by the insurers. “Due to multiple factors including Covid-19, the actual amount of claims settled has been higher than expected. Hence, keeping in mind future macroeconomic factors, the underlying mortality rate, along with other criteria, some reinsurers have decided to revise the rates,” says Gupta.
However, after the re-insurers hike their rates, there may not be an immediate or corresponding impact on the term insurance premium rates in India. “The decision to increase the premium rates depends on a company’s strategy. Insurers can increase the premiums, absorb the increase in premiums by reducing their margins and can also refile the product to achieve the business outcomes basis their strategy. The range of change in the premium hence will depend from insurer to insurer,” says Gupta.
A term insurance plan provides life cover till the period chosen by the policyholder. On death anytime during the policy term, the sum assured (life coverage amount) is paid to the nominee, while on surviving the policy term, there is no maturity value. Being a pure protection cover, the term plans are low-cost, high cover plans.
But, how competitive are term insurance plan premium rates compared to other countries? “Protection prices in India are a lot lower than some of the developed countries with superior healthcare facilities and higher life expectancy. Historical rate increases in India have been lower than inflation growth. We should expect pricing and underwriting norms to evolve in line with the expanding geographical and demographic coverage 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 platform (Credit Life) apart from the individual business,” says Shah.
“Term insurance is mostly taken for a longer duration of 25 years to 40 years as the policy term. In such a scenario it makes a lot of sense to avail the plan at lower premiums in case you are planning to buy a cover for yourself. Once you purchase a term insurance policy, the premiums do not change for the duration of the policy. The monetary savings can be quite substantial over a period of 25 to 40 years. I would strongly advise a term insurance cover of up to 20 times your current annual income at the earliest,” says Deepak Yohannan, CEO, MyInsuranceClub
If at all the term insurance premium rate gets revised, it may not be the same across all strata, as the actual revised premium rates will differ across age-groups, gender, sum assured chosen etc. Importantly, even if there is a hike, there will not be any impact on the existing policyholders. “Life insurance premiums are locked from the day one purchases the insurance policy. Hence, existing customers or customers who are looking to buy insurance in the next few days, need not worry about the increase in premiums as their premiums amount they are currently paying will remain locked and not be impacted by the reinsurers decision to increase premiums,” says Gupta.
Once purchased the premium remains fixed for the entire tenure of the policy. Any future changes on premium does not impact the outgo for the policyholder. Buying a term insurance plan early on before the increased rates comes into effect will let you lock-in to the rates for the entire policy term.
Term plan coverage is a must for anyone with financial dependents and one should avoid procrastination in buying them. Ideally, one should get a life cover of at around 15 times of one’s annual take-home pay and keep reviewing it every five years. Only once you have adequate term insurance cover, start saving for your long term goals for a worry-free financial planning.