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Increase payment tenure, go for monthly premium to counter hike in term rates
News reports suggest that life insurers may hike premium rates for term insurance plans once again. These rates have already been hiked once in April-may last year.
High mortality, low premium
Two key factors had led to last year’s hikes. Due to competitive pressure, premium rates had been plummeting in the Indian market for many years.
“At the same time, insurers had a worse mortality experience in certain market segments than anticipated,” says Sanjay Tiwari, directorstrategy, Exide Life Insurance.
Reinsurers, who take the risks of insurers on their own books for a price, hiked their premium rates last year. This move forced insurers to pass on the costs to customers.
“The increase in premium rates ranged between
5 per cent and 40 per cent across segments last year,” says Indraneel Chatterjee, co-founder and principal officer, Renewbuy.
The Covid impact
When the hikes occurred last year, the full impact of Covid was not known. Reinsurers and insurers have a better understanding now.
Says Adhil Shetty, chief executive officer (CEO), Bankbazaar: “From the industry data, it appears that mortality rates have been higher than was assumed in premium calculations. Consequently, reinsurers have reworked their premium rates.”
Moreover, increases didn’t happen across the board last year. While some insurers had hiked rates, others had not. Customers can be segmented, based on age, smoker or non-smoker, sum assured, premium payment term, policy payment term, and so on.
Even among insurers who increased rates, they did so in some segments and not in others.
“Companies that undertook smaller hikes last year may increase them again this year,” says Naval Goel, CEO and founder, Policyx.com.
How to save on costs
Even if a rate increase happens, do not compromise on the amount of coverage.
“Even if a second hike happens, the term premium rates in India will still be among the cheapest in Asian markets,” says Tiwari.
If you have not bought a term policy yet, or need to increase coverage, do so at once before the new rates kick in. Once you have bought a policy, you will get locked into that premium and will not be affected by future hikes.
Term premium rates vary across companies and segments. Go to online insurance platforms, enter your profile, and check the premium rates being offered. Such comparison will help you save money. If you can’t do this yourself, take the help of a financial advisor or distributor. Buying an online plan will also help you save money.
Various premium payment options are available — five, 10, 20 years, and so on.
“Longer the premium payment term, lower is the premium. Select the option that suits your pocket,” says Chatterjee.
To make the premium amount pinch even less, go for the monthly payment option.
Buy a term plan at the earliest, as rates are more attractive at a younger age.
“Whatever be your income, buy the amount of cover you are eligible for. When your income increases, hike the cover. If premium rates are higher, keep your old policy and buy a new one at the higher rate. If rates have declined, give up the older policy and buy one for a higher amount,” adds Chatterjee.
While choosing an insurer, in addition to price, pay attention to the solvency ratio and claim settlement ratio, and go with an established brand.
Finally, do not avoid a company that asks for a medical check-up. “If you have undergone a check-up, chances of a claim being repudiated reduce,” says Tiwari.