If you plan to purchase a term insurance plan, you should purchase it before March 31, as prices are expected to increase in the new fiscal year starting April 1, 2021. According to PolicyX Founder and CEO, Naval Goel, a 20 per cent increase in life cover prices is expected in the new fiscal year.
Goel told FE Online the percentage may differ from company to company and their plans. There are other factors such as gender, age group, income etc. which will also affect the price premium of the life cover.
Why the prices of term insurance plans are expected to rise
Dhirendra Mahyavanshi, co-founder of Turtlemint, said the increase in the incidence of claims in 2020 due to COVID, as well as the increase in co-morbidities among individuals, has prompted reinsurers to revise their rates. With the increase in mortality risks, reinsurers have been forced to increase their premium rates on pure protective insurance plans. Since life insurance companies reinsure their policies, rising premiums by reinsurers have also put a strain on life insurers. Thus, the prices of term life insurance coverage are expected to increase during fiscal year 2022.
The co-founder of Turtlemint said that the increase in term insurance rates can vary between 10% and 15%. Many reinsurers had already increased their premium rates in early 2021 and the rest are expected to follow suit by April 2021.
âLast year, insurance companies increased their basic term insurance rates from 25% to 30% following a high volume of claims. They were unable to keep up with the rate at which they had operated as the risk of death had increased. Now that reinsurers have revised their rates, life insurance companies are likely to increase term insurance premiums again because it would be difficult for them to underwrite lives at existing premium rates. This would lead to a further increase in the term insurance premium in 2021 of around 10-15% in the coming months, and may even go up to a maximum of 40%, âMahyavanshi told FE Online.
Akshay Dhand, Appointed Actuary at Canara HSBC Oriental Bank Of Commerce Life Insurance, said that over the years forward rates have become considerably lower due to stiff competition between insurers and pressure from web aggregators and other insurance intermediaries.
âHowever, as the customer base for these products grew, the actual mortality rate for these products deteriorated relative to their price. This prompted reinsurers, who retained most of the risk on these products. , to raise their tariffs at the beginning of last year. However, a number of companies had not increased their own tariffs or had only partially increased their tariffs by observing the market reaction. Nonetheless, it was evident that these companies should have increased their fares at some point and that is what we will probably see in the coming year. In addition, the experience has deteriorated further over the past year and it is likely that there will be another reinsurance rate review this year. How much of that increase will be passed on to customers and the timing of the same remains to be seen, “Dhand told FE Online.
How will policy premiums increase from April 1, 2021?
Casparus Kromhout, MD and CEO, Shriram Life Insurance, said companies decide premiums based on the mortality table and the company’s risk assessment. These also depend on how much of the increased additional costs the company is willing to absorb and how much it is willing to pass on to the customer.
Goel said there would be a significant increase in the policy premium if life coverage prices increased by 20 percent. âFor example, for a man around 30 years old if the annual premium is around Rs. 10,000 but after the hike it would cost Rs. 12,000 per year. And supposedly if the police have to be paid for over 40 years, the total increase would be Rs. 80,000 per year, âGoel said.
Akshay Dhand explained that the actual increase in policy premium will vary from company to company, as it will critically depend on how competitive their rates are in the first place as well as how their rates increase in the first place. over the past year.
“For example, if a company was very competitive and did not change its tariffs at all last year, the increase can reach 50% whereas if it had already increased its tariffs by 25% last year, then the increase may be limited to 15% -20%. It is important to note that the actual increase in rates that will be affected by companies will also depend on their strategy and the volume of business they write or write in it. segment, âDhand said.
âFor example, if a company writes intangible forward business proportions, it may not bother to change the rates at all or change the rates only to a minimal extent, as this gives them the marketing edge of the business. ‘be cheap without hurting their finances. Likewise, a business may decide that it is strategically important for it to maintain its competitive advantage in this space and may continue to incur losses on futures business (by not changing rates or changing to a lesser extent) and subsidizing the same with the profits. other sectors of activity that they write, âhe added.
Mahyavanshi also said there is no set rule or guideline for high policy premiums. However, it is estimated that police premiums would become more expensive by 10-15%. This is purely due to the increase in mortality risk premiums by reinsurers.
âIn addition, underwriting standards are also set to become more stringent and standardized to ensure that insurance companies carefully assess mortality risks, in order to avoid high claim volumes and to deal with subsequent losses. In case of tele-subscription or subscription for telemedicine, insurers could request additional documents such as proof of income, proof of medical examinations, etc. before issuing the policy to the individual. Thus, stricter underwriting standards and higher premiums would limit losses for insurance companies. This would help them pay the higher risk premium to reinsurers without affecting their profitability and livelihood, âhe said.
Will the increase in the price of term life cover have an impact on existing policyholders?
All experts agree that there will be no impact on the existing insured. The increased prices will only be applicable to existing insureds.
âNo, this will not affect existing policyholders who already have a term policy or who buy before March 31, 202. The premium prices only apply to new customers who buy term insurance after this fiscal year. And of course people wanting to buy in FY 22 will have to pay the following new rates, âGoel said.
Mahyavanshi also said the impact of rising term insurance premiums would only affect new policyholders. This is because term insurance premiums do not change after issuance of the policy, unless there has been a change in the terms and conditions such as an increase in the sum insured, addition / deletion any additional services, etc.
âSo if a policyholder has an existing term insurance plan, their premium would not be affected by this premium increase. The impact of the increase in premiums would be felt by new policyholders opting for a new term insurance plan during the 2021-2022 fiscal year, in particular those suffering from co-morbidities. This is because smokers and other people with co-morbidities would have a higher premium increase than before with this rate increase. Even people in the informal sector or the self-employed who do not have official income support or income tax returns to support their income might face a large increase in premiums as a non-standard case. In fact, many insurance companies have already filed new term insurance plans with the Insurance Regulatory and Development Authority of India (IRDAI) which reflect the increase in premium rates with some changes in benefits as well â , Mahyavanshi explained.
Should you purchase term life insurance before March 31 and why?
Experts said purchasing the term plan before March 31 will benefit policyholders.
âOf course, it is always advisable to buy a temporary policy as soon as possible. The basic idea of ââterm insurance is to offer financial cover to the applicant in exchange for a premium amount, which is directly related to the age of the policyholder. This means that the later you opt for a term plan, the higher the premium you have to pay. The companies have announced an increase of almost 20% or so that will be applicable from April 1, 2021 so that buyers can save at least 20% of an additional cost. However, the excess amount varies from company to company and the nature of the investment, âsays Goel.
Mahyavanshi said that if you do not have a term insurance policy or are considering switching to a different one, it is recommended that you purchase the policy before the end of the current fiscal year, that is ie before March 31, 2021. You will be able to purchase the policy at the premium rate in effect. As reinsurance contracts are reviewed between January and April, any premium increase would be passed on from April 2021, i.e. from the following year.
âSo if you buy a policy before March 31, 2021, you may be able to save the 10-15% premium increase that is expected to occur in the next fiscal year. This is because once you buy a term insurance plan for, say, Rs 1 crore for 35 years and start paying a premium, it is locked in for life and does not change even if insurers or reinsurers choose to. increase their premiums and costs. . Only your tax portion can be affected if tax enforceability changes, but not otherwise. Therefore, it is always better to take out a term insurance plan at the earliest, but in March 2021 it makes even more sense to save that extra amount for life! Mahyavanshi concluded.