Term insurance premium rates were hiked by insurance companies including ICICI Prudential Life, Max Life, Tata-AIA, and HDFC Life, in April. Experts say the increase was expected as recently, companies have noticed a hike associated with claims due to the increased mortality rate.
Earlier this year, reinsurers had also raised their premium charges by 30-50 percent. The reinsurance rates increase if the current claim experience, for policies bought over the last 5 years, is not beneficial and if they have paid more in claims amount compared to premiums they have earned. From 1st April 2020, most reinsurers have increased their rates. This has led to some life insurers passing on the increase to customers through higher premiums. There are variations in the quantum of the hike across sum assured, age groups, policy term, and premium payment terms. This increase by re-insurers is varied, depending on their mortality experience with the various insurers.
Naval Goel, CEO, and Founder of PolicyX.com says, “The calculation of term insurance premiums is done on the basis of mortality rate and expected claims. The present rate of premium charges is not sufficient to offer the required coverage due to the increase in reinsurer rates. After witnessing the current situation, there will be a hike in premium in the coming days. So, people should make an investment in term insurance as soon as possible.”
The increase in the premium charged in term insurance plans implies that the number of actual deaths is higher than the expected death rate for which the pricing was done. Life insurance companies may choose to increase the premium charged in term insurance plans basis the current experience of the company, however, only a few companies have followed in their footsteps. For instance, IndiaFirst Life says they will not increase the premiums in their existing e-term plans, as they have not had any adverse experience.
How will the new hike in term insurance affect policyholders?
The hike in term insurance means that all new policies bought will have higher premiums for the same sum assured (SA) compared to policies that were bought before this change. Rushabh Gandhi, Deputy CEO, IndiaFirst Life Insurance Company says, “Most term plans are level paying policies, where the premiums are set for the duration of the plan. Hence, this does not impact existing policyholders. The hike in premium will be applicable only to the new customers, who will have to pay as per revised premium rates.”
In view of the increasing uncertainties in people’s lives, even with the new hike making term plans more expensive for customers, experts suggest having a life insurance cover with a pure protection term plan is a must as it is one of the safest options to securing the financial future of one’s family. Karthik Raman, CMO, and Head-Products, IDBI Federal Life Insurance says “Despite this increase, term plans should still be the first financial asset one invests in. They are pure protection plans that provide a crucial financial safety net to the policyholder’s family in case of unfortunate death of the policyholder.”
Industry experts say there is a huge protection gap in the country, and India still has fairly low rates when it comes to protection products even as compared to the rest of the markets across the world. Suresh Badami, Executive Director – HDFC Life says, “Term insurance prices continue to be competitive and from the customer perspective they are very much affordable. Customers should evaluate their requirements based on their own financial planning and definitely go for adequate term cover.”