Enter term insurance early, lock in the premium as delay means higher cost

Online insurance marketplace PolicyX has launched the country’s first indices on term and health insurance, based on prices from leading insurers. These indices will allow buyers to observe trends in premium rates. A closer look at the data in these indices reveals insights that buyers can use to make informed decisions.

Higher sum assured fetches a discount

The increase in term premium rates is not linear. As the sum assured increases, insurers offer a discount. This is why the premium for a Rs 1 crore sum assured is less than 2x the premium for a Rs 50 lakh sum assured (see table). Should you then go for one large policy or two smaller ones? Some people buy multiple policies as a hedge against a claim being denied. But experts say the probability of their claim being rejected is low if they are honest with disclosures. So, you may buy one large policy and enjoy the discount. However, it is a good idea to diversify term covers based on maturity. Let one policy terminate on retirement. The other one can extend to the maximum possible tenure. Once you have retired, your human life value anyway goes down, so you need a smaller cover. So, buy two policies if you are willing to pay a higher premium. Mrin Agarwal, financial educator, and director, Finsafe India, says, “If the difference in premium is not high, it’s better to diversify.”

Delay means higher cost

According to the index, the average term premium increases exponentially with age. The average premium is 85 per cent higher for a 55-year-old than a 45-year-old; 70 per cent higher for a 45-year-old than a 35-year-old; and 45 per cent higher for a 35-year-old than a 25-year-old. A 55-year-old pays four times what a 25-year-old pays. Naval Goel, chief executive officer (CEO) and founder, PolicyX says, “Enter a term plan early and lock in the premium.” Your insurance needs can change with the life stage. Goel adds, “Evaluate your insurance needs every five years, but start early.”

Smokers pay steep premiums

Smokers should be prepared to shell out much higher premiums. On an average, across age groups, a male smoker pays 57 per cent more than a non-smoker while a female smoker pays 55 per cent more. The increase in premium is higher for smokers in higher age bands. Agarwal says, “Smokers get the worst deal in insurance as they carry high risk. But be honest about smoking while filling the proposal form. Failure to disclose correctly could jeopardise your dependants’ financial lives.”

Health premium rises sharply at higher age

Premiums increase rapidly with age as both the frequency and severity of ailments rise. From age 26 to 36, the average rise in health premium is a nominal 14.6 per cent. But it rises 60.7 per cent from age 46 to 56. Customers in higher age brackets need to prepare themselves for steep hikes. Even in health insurance, buy early. M. Barve, founder, MB Wealth Financial Solutions, says, “If you get a lifestyle ailment, getting a health cover will become difficult.” By buying at a young age, you avoid loading of premium and the risk of your proposal being rejected. Family floater health plans are more economical than individual policies. The premium increases by only a small amount when children are added. Goel adds, “But, buy a separate policy for elderly parents.”