Premiums For Term Life Insurance – Home / Money / Personal finance / Don’t let rising insurance prices stop you from buying it
Don’t let sky-high insurance rates stop you from purchasing the 4 minute reading. Update: 22:42 on 30 July 2020 IST Disha Sanghvi Premium
Premiums For Term Life Insurance
The fear of contracting covid-19 has sent the demand for life insurance in the country skyrocketing. However, due to rising mortality and other factors, premiums for the term have increased in recent months across terms. Some insurers adjusted their premiums three times between March and July this year.
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Term plans are pure insurance policies that pay a guaranteed predetermined amount on the death of the insured. Such plans offer a great coverage at an affordable premium. But this year, most insurance companies such as ICICI Prudential Life Insurance Co., Ltd., Tata AIA Life Insurance Co., Ltd. and Bajaj Allianz Life Insurance Co., Ltd. greatly increased their premiums.
According to data obtained from Policybazaar.com, an online insurance aggregator, from March to July, ICICI Prudential Life, Tata AIA and Bajaj Allianz Life hiked premiums for their term plans by 37%, 32% and 36% respectively. The rates are compared for a 30-year-old person for a period of 50 years (up to 80 years) with a sum assured of ₹1 crore. For whole life insurance policies (up to 70 years), ICICI Prudential, Tata AIA and Bajaj Allianz life increased life insurance premiums by 37%, 31% and 36% respectively.
Most insurance companies cite rising mortality as the reason for rising premiums. Note that term premiums are calculated based on expected future mortality and claims. In cases where the difference between actual and expected damages is large, premiums can be increased to close the gap.
Bharat Kalsi, chief financial officer at Bajaj Allianz Life, said term premiums across the industry are being revised for a number of reasons. “One reason is that reinsurers readjust their rates because of the expected death experience versus the actual experience,” he said. Reinsurance companies cover risks for insurance companies.
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RenewBuy CEO and co-founder Indraneel Chatterjee said reinsurers are under stress mainly due to the increase in mortality in India over the past few years, which has had a negative impact, extreme when the number of deaths has exceeded the expected level. .com, an online insurance aggregator.
Falling interest rates can also affect insurance premiums. Aalok Bhan, director and chief marketing officer of Max Life Insurance, said premiums for term plans are the most sensitive factor to mortality and interest rates. “Since March, interest rates have fallen significantly, which has affected the durability of forward rates. The observed premium revision is a response to the sharp decline in interest rates since March,” he said.
Term premiums are usually based on the present value of future damages. The present value mentioned by Bhan is calculated using interest rates. This is what a future cash flow is worth today. “When the interest rate falls, the present value of future compensation rises, and vice versa. Since interest rates have been falling since March, the present value of future claims has increased and so has the premium,” he added.
Bhan said that changes in both these parameters (mortality and interest rates) would lead to increased premiums. “Furthermore, premium increases at the industry level will depend on whether all insurers have adjusted premiums based on their experience or whether some have yet to revise them; and if so, whether they adjusted to the full extent that changes in mortality and interest rates required . Therefore, any future revisions will depend on the individual company’s consideration of the aforementioned parameters.”
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However, term premiums in India are still lower than in countries like Singapore and the US.
Even as premiums rise, demand for protection plans has increased, driven by fear of death fueled by the covid-19 pandemic. Most insurers believe that the price increase will not affect demand in the medium to long term due to increased awareness.
“Demand for protection products has increased in the last quarter and this is likely to continue,” said Samit Upadhyay, Chief Financial Officer and Chief Product Officer of Tata AIA Life.
Chatterjee says the increase in premiums has not stopped consumers from actively seeking coverage. Protecting the family has become a leading factor amid the pandemic, he added. Additionally, Max Life’s India Protection Index Accelerator Survey, conducted from June to July, shows that 41% of respondents are looking to purchase term insurance plans for financial protection, primarily for their families. They cite rising covid-19 cases as a reason to buy term plans.
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Term insurance is a must for income earners in any family and an increase in premiums should not affect this decision. “This is the only way to protect financially dependents in the event of an early death of the dependent. Also, the premiums remain the same during the term of the policy for the entire policy term. You should buy a policy that covers you at least till the age of 60, which is the normal retirement age .Melvin Joseph, founder of Finvin Financial Planners and a registered investment adviser with Sebi, says premium hikes are not a reason to avoid term insurance.
With the right term insurance, the family may not have to compromise on living standards and other goals if the breadwinner dies. “Such a situation can be avoided by buying high value insurance. The premium paid is worth the peace of mind you get,” added Joseph.
The claims settlement rate is a good parameter to check before giving an insurance company a discount. The percentage indicates the percentage of claims settled by the insurance company for the number of claims received. Financial planners recommend securing an amount that is at least 10-12 times your annual income.
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