Opt for monthly payment of term premiums as insurers get set to hike rates

Some insurers have already started increasing premiums, and others are expected to do so in the next six months

Several life insurers have hiked their term insurance premium rates recently. More are likely to follow suit in the near future. Rates are expected to move up across companies over the next six months. The industry may even adopt tighter underwriting norms.

Insurers set their term premium rates based on certain assumptions of what their mortality experience will be. Their actual experience has been worse than expected. Also, owing to competitive pressures, insurers have reduced their term policy premiums to unsustainably low levels.

Now, reinsurers have hiked their premium rates — by up to 40 per cent, according to industry sources.

“Insurers keep one portion of the risk with themselves and transfer the second, larger component, to reinsurers by paying them a premium. Three months ago, all reinsurers operating in India increased their reinsurance rates substantially for all insurance companies. They did so because their claims experience had deteriorated over the past three years. They increased their rates to continue to write this business profitably,” says Mohit Garg, head of products, PNB Metlife. 

Insurers, therefore, have also been left with no option but to hike their premium rates.

  

A couple of insurers have hiked their premium rates by 3-4 per cent. 

 

 

“There has been only a partial rate hike in the first wave — what insurers have been permitted in their existing products. They will re-file their products with the regulator and pass on the full extent of the rate hikes they have received from reinsurers in their new products,” says Santosh Agarwal, chief business officer, life insurance, PolicyBazaar.

Some may take a temporary hit to their margins to push sales, touting their lower premiums, but eventually they will all be forced to hike, say experts.

Buyers can take a few steps to minimise the impact of rising premiums. “By buying at a younger age, you can get a lower premium rate,” says Pankaj Chauhan, managing director and chief executive officer (CEO), Epoch Insurance Brokers. 

Opting for a limited premium payment term of, say, five to 10 years, will also get you a discount, he suggests.

Right now, a few top-rung insurers have still not hiked their rates. “Buy from them soon and avail of the current rock-bottom rates,” says Naval Goel, CEO, PolicyX.

Consider choosing the monthly payment option. “Even if the monthly premium on a Rs 1-crore policy rises from, say, Rs 1,000 to Rs 1,400, it will not pinch as much,” says Agarwal. Also, compare premium rates online before buying.

While paying the minimum premium is important, also pay heed to what you are getting for your money. Since these are long-term contracts, go with one of the stronger brands. Check the insurer’s claim settlement ratio — it should not be less than 95-97 per cent. Buy from an insurer with a high solvency margin. 

Insurers may tighten underwriting standards to improve their claims experience. For instance, they may hike the annual income criterion of the people they choose to cover. “Business persons should disclose their full income while filing tax returns. Among other benefits, this will make them eligible to a higher sum assured on a term policy,” says Goel.