NEW DELHI: The term insurance plans, which provide only life cover and have no investment component – are likely to become expensive by anywhere between 10-20% next year.
The reason being reinsurers, who share some of the underwriting risk of the insurance companies, have decided to increase their rates (for sharing the risk).
During the Covid-19 pandemic, the life insurance companies saw the death claims increase substantially, and so was their claims from reinsurers.
For example, SBI Life, one of the listed life insurance companies, saw total death claims rise 74% in 2020-21, while HDFC Life witnessed payment related to death claims rise 28% during the financial year.
While the death claims are across product categories, insurance companies do not re-insure the underwriting risks taken across all products. Since term insurance plans are pure protection products, they give a much bigger life cover at a fraction of cost.
For example, one can take a Rs 1-crore insurance cover by paying as low as Rs 7,500-12,000 a year.And since the insurance companies are taking a bigger risk on these plans, they share the risk with a reinsurance company by paying a fee.
The pandemic has resulted in larger death claims payments, which in turn mean reinsurers had to also make increased reinsurance payments to insurance companies. An increase in premium depends on the claims ratio or claim experience of the insurers.
“It is likely that some re-insurers may raise their prices. The reason for the same is that due to multiple factors, including Covid-19, the actual number of claims settled has been higher than expected. Hence, keeping in mind the future macroeconomic factors, the underlying mortality rate along with other criteria, some reinsurers have taken the decision to revise rates,” says Varun Gupta, Chief & Appointed Actuary, Bharti AXA Life Insurance.
According to Jitendra Singh, vice-president, Swastika Insurance Broking Services Limited, the premium may increase between 10 -20%. He says that many insurers have already increased the premium whereas some insurers are likely to increase it in due course of time.
Who’s getting impacted
If you already have one or more term insurance plan(s), you should not be worried about any increase in your premium as life insurance premiums are locked from the day one purchases the insurance policy.
“Existing customer or customers who are looking to buy insurance in the next few days, need not worry about the increase in premiums as the premium amount they are currently paying will remain locked and not be impacted by the reinsurers decision to increase premiums,” says Gupta.But those looking to delay their purchases may have to shell out more – especially – if they fall in the above 35-year age category.
Why term insurance is necessary
As explained earlier, term insurance plans are pure protection plans, which means that only in case of the death of the life insured, the family/nominee gets the sum assured.
Term insurance plans are cheaper because the whole premium goes towards providing death cover unlike in investment insurance products such as Unit-linked Insurance Plans (ULIPs), where a part of the premium is used for creating an investment portfolio.
Term insurance premiums may get expensive by 10-20%, but they are still the most effective when it comes to providing financial security to your family in your absence.