Lock into current term insurance premiums, new rates unlikely before Apr 1

The term insurance market in India, which has mostly seen a drop in premium rates over the past several years, is set to witness a reversal of trend.

Life Insurance Corporation (LIC) of India Chairman M R Kumar recently told reporters that term premiums are likely to rise due to increased stress in the reinsurance business. Prospective customers who need to buy a term plan should expedite their purchases and lock into the current rates before insurers announce their revised ones.

Term plan premiums are lower today than they were about 10 years ago. “Competition has driven premiums down. Now these rates are proving to be unsustainable,” says Naval Goel, chief executive officer, PolicyX.com.

Recently, reinsurers, who take the risk off insurers’ books, wrote to insurance companies informing that they plan to hike reinsurance premiums. This hike will, in all likelihood, be passed on to customers.

The sale of term plans gathered pace only over the past four-five years. In the absence of real data, insurers set their premiums based on assumptions. They used LIC’s mortality tables as their basic reference point. 

The LIC data represents the entire Indian population — rural and urban, rich and poor, etc. Term insurance tends to be purchased predominantly by better-educated urban dwellers with mid- to high- income levels.

“Since the term insurance buyer’s profile is better than that of the average population, insurers applied a discount and assumed that mortality rates would be lower than those given in LIC’s tables,” says Santosh Agarwal, chief business officer-life insurance, PolicyBazaar.

For instance, if the LIC mortality table said 10 of 10,000 people would die within a certain time span, private insurers assumed only two would die.

Now, the actual market data is becoming available. “In the last couple of years, the industry and the reinsurers (largely) have been experiencing mortalities higher than that used in premium calculation. The current premium rates no longer seem viable, hence, we see an impending rise in rates,” says Avdhesh Gupta, appointed actuary, Bajaj Allianz Life.

Experts say it is difficult to predict the exact quantum of hikes. Estimates range between 15 per cent and 40 per cent. “All insurers may not pass on the entire rise in reinsurance rates to customers. Some may prefer to work on reduced margins to gain market share,” says Goel.

Price hikes may not be announced before the start of the next financial year. Insurers are unlikely to raise rates in the midst of the tax-saving season when most of the insurance purchases happen. “Those who need term insurance should expedite their purchases as rates are at rock bottom now,” says Agarwal. Once you buy a term plan, the premium remains unchanged throughout its tenor.

Online plans of many insurers are cheaper than their offline ones, so opting for the former could save you money. Gupta suggests buying term insurance at a younger age, when premium rates tend to be lower due to the insured’s good health.

Maintaining healthy habits also helps: Non-smokers pay a lower premium than smokers. “Opt for medical check-up at the time of buying the policy, as this will enable the insurer to provide you better premium rates,” advises Gupta.  

When selecting a term plan, compare the prices of various insurers online. Goel suggests going with a bigger, more stable company, as these are long-term contracts lasting 20-40 years and you would want to bet on a company that will still be around when your family makes a claim.

Agarwal suggests comparing the claim settlement ratios and solvency margins of insurers. Finally, check whether the riders you want are available with the insurer you have chosen.