Term life insurance rate 2021: 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 others are expected to follow suit by April 2021.
If you plan to purchase a term insurance plan, you must purchase it before March 31, as prices are expected to increase in the new fiscal year beginning April 1, 2021. According to PolicyX Founder and CEO Naval Goel , a 20 per cent increase in life insurance prices is expected in the new fiscal year.
Goel told FE Online that 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 life cover price premium.
Why Term Insurance Plan Prices Should Rise
Dhirendra Mahyavanshi, co-founder of Turtlemint, said the increase in claims incidence in 2020 due to COVID, along with the increase in co-morbidities among individuals, has prompted reinsurers to revise their rates. With the rise in mortality risks, reinsurers have been forced to increase their premium rates on pure protection insurance contracts. Since life insurance companies are reinsuring their policies, premium hikes by reinsurers have also strained life insurers. Thus, term life insurance prices are expected to increase in fiscal 2022.
The Turtlemint co-founder said 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 others are expected to follow suit by April 2021.
“Last year, insurance companies increased their basic term insurance rates by 25% to 30% following a high volume of claims. They were unable to maintain the pace at which they had been operating since the risk of mortality had increased. Now that reinsurers have revised their rates, life insurance companies are likely to raise term insurance premiums again as they would struggle to underwrite lives at existing premium rates. This would again lead to an increase in the term insurance premium in 2021 by around 10-15% in the coming months, and could even go up to a maximum of 40%,” Mahyavanshi told FE Online.
Akshay Dhand, appointed actuary at Canara HSBC Oriental Bank Of Commerce Life Insurance, said that over the years term rates have become significantly lower due to fierce competition between insurers and pressure from web aggregators and other insurance intermediaries.
“However, as the customer base for these products grew, there was a deterioration in the actual mortality rate of these products relative to their price. This prompted reinsurers, who retained most of the risk at the These products raised rates early last year, but a number of companies either did not raise their own rates or raised their rates only partially as they watched the market reaction. Still, it was obvious that these companies should have increased their rates at some point and that’s what we’ll likely see over the next year, and the experience has further deteriorated from the previous year. last 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 of 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 additional cost increase the company is willing to absorb and how much it is willing to pass on to the customer.
Goel said there will be a significant increase in the policy premium if prices for life cover increase by 20%. “For example, for a man of around 30 years old, if the annual premium is around Rs. 10,000 but after the trek, it would cost Rs. 12,000 per year. And supposedly, if the policy is to be paid for 40 years, the total upside would be Rs. 80,000 per year,” Goel said.
Akshay Dhand explained that the actual increase in policy premium will vary from company to company as it will basically depend on how competitive their rates are in the first place as well as how their rates have increased in the last year.
“For example, if a company was very competitive and did not change its prices at all in the last year, the increase could be as high as 50%, whereas if it had already increased its prices by 25%, for example example, last year, the increase may be limited to 15%-20%.It is important to note that the actual increase in tariffs that will be affected by companies will also depend on their strategy and the volume of business that they ‘they write or would write in this segment,’ Dhand said.
“For example, if a company writes immaterial proportions of forward business, it may not bother to change rates at all or only change rates to a minimal extent, as this gives it the marketing advantage of be cheap without hurting your finances. Similarly, a company may decide that it is strategically important for it to maintain its competitive advantage in this space and may continue to incur losses on the business going forward (by not changing prices or by changing to a lesser extent ) and subsidizing them with profits. other industries they write,” he added.
Mahyavanshi also said there is no fixed rule or guideline for high policy premiums. However, it is estimated that insurance premiums would become more expensive by 10 to 15%. This is solely due to the increase in mortality risk premiums by reinsurers.
“Additionally, underwriting standards should also become more stringent and standardized to ensure that insurance companies assess mortality risks thoroughly, in order to avoid high claim volumes and deal with subsequent losses. In the event of tele-underwriting or underwriting for telemedicine, underwriters may request additional documentation such as proof of income, proof of medical check-up, etc. before issuing the policy to the individual. Thus, stricter underwriting standards and higher premiums would limit the losses of insurance companies. This would help them pay the higher risk premium to reinsurers without affecting their profitability and livelihood,” he said.
Will the increase in the price of term life insurance have an impact on existing policyholders?
All experts agree that there will be no impact on the existing insured. The increased prices will only apply to existing insureds.
“No, this will not affect existing policyholders who already have a term policy or who buy before March 31, 202. The increased prices only apply to new customers who buy term insurance after this fiscal year. And of course , people looking to buy in FY22 will be charged the following new rates,” Goel 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 the policy is issued, unless there has been a change in the terms and conditions such as an increase in sum insured, addition/removal of any additional services, etc.
“So if an insured has an existing term insurance plan, their premium would not be affected by this premium increase. The impact of the premium increase would be felt by new policyholders switching to a new term insurance plan in fiscal year 2021-22, particularly those with co-morbidities. Indeed, 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 formal income proofs or tax returns to substantiate their earnings might face a steep premium increase as a non-standard case. In fact, many insurance companies have already filed new term insurance plans with IRDAI (Insurance Regulatory and Development Authority of India) which reflect the increase in premium rates with some changes in benefits as well” , explained Mahyavanshi.
Should you buy term life insurance before March 31 and why?
Experts said buying the term plan before March 31 will benefit policyholders.
“It is certainly always advisable to purchase a term insurance policy as soon as possible. The basic idea of term insurance is to offer financial cover to the claimant 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 the increase of almost 20% or so that will apply starting April 1, 2021 so that buyers can save at least 20% of an additional cost, but the excess amount varies from company to company and the nature of the investment,” says Goël.
Mahyavanshi said that if you do not have a term insurance policy or are planning to opt for another one, it is recommended that you purchase the policy before the end of the current fiscal year, that is- i.e. before March 31, 2021. You would be able to purchase the policy at the prevailing premium rate. As reinsurance contracts are revised between January and April, any premium increase would be passed on from April 2021, i.e. from the following financial year.
“So if you take out a policy before March 31, 2021, you may be able to save the 10% to 15% increase in premium that is expected to come in the next financial 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 increase their premiums and costs. . Only your tax portion may be affected if the tax applicability changes, but not otherwise. Therefore, it’s always better to get term insurance early, but in March 2021, it makes even more sense to save that extra amount for life! Mahyavanshi concluded.