Upcoming term plan premiums to soon match with the global premium levels: Why you need to know?

In April 2020 the price of term life Insurance policies had gone up by 15-20% and due to the concurrent situation of the global pandemic and rising risk, the Insurers are again intending to increase the premium rates of term plans by 25%-30%.

The next round of increase in the Insurance industry is expected in 2021. According to the Insurance Regulatory Development Authority of India (IRDAI) data, the foreign reinsurance branches had to bear a loss of Rs 1,115 crore in the year 2019-20 as the claim ratio increased to 98.60% compared to 89.51% of last year.

This proposed premium increase is not solely based on the heightening risk profile due to the pandemic but additionally because compared to the global insurance rates the Indian term plan rates are not priced justly. To handle the Insurance competition the life insurers have kept the premium prices too cheap and it is quite challenging for them now to continue these prices for the long term if they want to survive in the business.

Along with proposed premium hike there can be changes in the policyholder’s on-boarding process as well. Instead of just Tele check-ups, re-insurers are insisting on physical check-ups of new policy buyers for better risk selection.

In April 2020 the price of term life Insurance policies had gone up by 15-20% and due to the concurrent situation of the global pandemic and rising risk, the Insurers are again intending to increase the premium rates of term plans by 25%-30%. The next round of increase in the Insurance industry is expected in 2021.

More than 75% of the Indian population is uninsured with a protection margin of over 92.2%.

With the ensuing pandemic, rising diseases, and uncertainties attached with life having Insurance in place is a must for a balanced financial life. Having your Insurance piece fixed in a right place provides you protection, financial security, debt cover along tax-benefit. 

According to the Handbook on Indian Insurance statistics of IRDAI, more than 75% of the Indian population is not covered under Insurance that sums to more than 988 million people.

So which side of the population you stand in the insured ones or the uninsured side. Also, India has one of the highest “Protection margin” in Asia which means that if a family needs 100 rupees for protection in case of Income loss then they only can cover up to Rs.7.8 leaving a big gap of Rs. 92.2 left uncovered. 

Insurance is nothing but a tool to mitigate your risk from yourself to Insurer who can afford it. A Term plan or any other traditional insurance plan is needed to be in place to save you and your loved ones from the uncertainties attached to life. Because any serious illness or accident can wreck your financial stability within a fraction of seconds. Being the purest form of insurance term plan helps the most as your life is insured against the risk of eventualities. You need risk-protection at almost all of the life stages of your life like when you get your first job, your marriage, your child, your retirement, etc. Both the term and traditional insurance plans cover the risk of premature death. The only difference is that while traditional plans promise benefits even after maturity, term plans don't pay if an insurer survives the period of the policy but now insurers are offering plans where the insured gets the paid premium return if he outlives the policy term.

A term insurance plan comes majorly with three options-

• One-time premium payment i.e. the premium is payable as a one-time lump sum payment
• Partial premium payment i.e. the premium amount is paid in partial terms
• Regular premium payment i.e. the premium amounts are paid in regular intervals

Besides, some companies are offering the option of choosing a return of premium clause but that is costlier as the insurer needs to repay the paid premium amount if the insured outlives the policy term.

The proposed increase in premium is not solely based on the heightening risk profile but additionally because compared to the global insurance rates the Indian term plan rates are not priced justly and to balance insurer’s survival and growth they have to take this measure. 

Regards,

khyati Mashru Vasani

Founder & Chief Financial Coach

Plantrich & Vama Plantrich LLP