The term insurance plan premium rate repricing is expected to take effect beginning in the fourth quarter of FY22.
News on the Term Plan Premium Increase: If you are looking to purchase term insurance, you may need to hurry if you also want to save on costs. The premium for term insurance plans could soon see an increase if global reinsurers increase their rates. “Yes it is. Some reinsurers are expected to increase rates. However, this information remains confidential and is only made available to the public once it is finalized and deployed,” informs Varun Gupta, Chief Actuary and named, Bharti AXA Life Insurance.
The rise in term plan premiums is attributed to an impending hike in reinsurance rates by global reinsurers. “Discussions with reinsurers on repricing are currently ongoing and the amount of the price increase has not yet been finalized. Repricing is expected to take effect from the fourth quarter of FY22,” says Niraj Shah, Chief Financial Officer, HDFC Life.
A portion of the lives underwritten by life insurance companies is passed on to reinsurers who bear the risk for which the insurers pay them a premium. When reinsurers raise reinsurance rates, there is a subsequent increase in the premium rates they must offer potential purchasers of term plans. “We will continue to follow a nuanced risk-based pricing approach and increase client prices in line with emerging experience. We believe that protection is a long-term, multi-decade opportunity in India, given the level of under-penetration and gaps in protection,” Shah adds.
The impact of claims induced by Covid-19 could be one of the reasons why the prices of temporary packages will be revised by insurers. “Due to multiple factors, including Covid-19, the actual amount of claims settled was higher than expected. Therefore, keeping in mind the future macroeconomic factors, the underlying mortality rate, as well as other criteria, some reinsurers have decided to revise the rates,” says Gupta.
However, after reinsurers raise their rates, there may not be an immediate or corresponding impact on term insurance premium rates in India. “The decision to increase premium rates depends on the company’s strategy. Insurers can increase premiums, absorb the increased premiums by reducing their margins, and can also reclassify the product to achieve the business results that underpin their strategy. The range of premium variation will therefore depend on one insurer to another,” explains 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 assured (amount of lifetime coverage) is paid to the applicant, while upon surviving the term of the policy, there is no value to deadline. Being pure protection coverage, term plans are low cost, high coverage plans.
But, how competitive are the premium rates for term insurance plans with other countries? “Prices of protection in India are much lower than in some developed countries with superior healthcare facilities and higher life expectancies. India’s historic rate hikes have been lower than inflation growth. We should expect pricing and underwriting standards to evolve as geographic and demographic coverage expands 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 opportunity for protection through our group platform (Credit Life) outside of the sole proprietorship,” says Shah.
“Term insurance is mostly taken out for a longer term of 25 to 40 years as the term of the policy. 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 coverage for yourself. Once you have purchased a term insurance policy, the premiums do not change for the life of the policy. The monetary savings can be quite substantial over a 25-40 year period. I would strongly advise term insurance coverage up to 20 times your current annual income at the earliest,” says MyInsuranceClub CEO Deepak Yohannan.
If the term insurance premium rate is revised, it may not be the same in all strata, as the revised actual premium rates will differ by age group, gender, sum insured chosen , etc Above all, even if there is an increase, there will be no impact on existing policyholders. “Life insurance premiums are blocked from the day you buy the insurance policy. Therefore, existing customers or customers looking to purchase insurance in the next few days need not worry about increased premiums, as the amount of their premiums they are currently paying will remain locked in and will not be unaffected by the reinsurers’ decision to raise premiums,” says Gupta.
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 insured. Purchasing a term insurance plan early before the rate increase takes effect will allow you to benefit from the rates for the duration of the policy.
Term plan coverage is a must for anyone with financially dependents and procrastination should be avoided when purchasing them. Ideally, one should get life coverage of around 15 times their annual net salary and keep reviewing it every five years. Once you have adequate term insurance coverage, start saving for your long-term goals for worry-free financial planning.
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