The year 2020 has seen a lot of turmoil in the world. Much like any other time of mass calamity, the insurance industry has been on the forefront for this pandemic as well. Financial services across the world are known to be the leading adopters of digital technologies.
Insurers have been no different. Emerging markets had seen much higher growth in technology adoption by insurers. The year 2020 accelerated the process multi-fold. The pandemic coupled with the accelerated adoption of technology-enabled insurers to convert awareness into a policy.
While the year (financial year) is yet to complete and data for the third quarter is yet to arrive, the first two quarters show significant growth.
On the other hand, most people who had a life insurance cover at the beginning of the year can feel thankful. The others who didn’t have it so far have started considering it seriously. Pandemic has made more people aware of the insurance than ever before.
1. Why the Increase in Premiums?
Insurance is a community product and the larger the adoption among the members of a community the more stable premiums can be. However, in a market like India, term life insurance penetration is still one of the lowest in the world.
Thus, you can expect premiums to change rapidly as more people subscribe to the concept. In this case, the premiums could change based on the following two factors:
- Insurer’s policy distribution expenses
- The total risk assumed by the life insurer
This time the increase has been due to a global rise in the premiums of re-insurers, as the risk to life increased worldwide.
2. Effect on Existing Policyholders
Should you be worried about additional premiums on your existing life insurance plans?
Not really, the new premium rates will affect only new buyers. So, if you are buying a new term insurance plan, you may have to pay the premium at new rates.
3. Worth of a Term Life Insurance
Does the premium increase make term insurance lose it’s worth?
Seems unlikely. If you are a 30 years old healthy male, you pay about Rs. 11,000 per year for a cover of Rs. 1 crore. Even if your premium is to rise 20%, it’ll still be a meagre 13,200 for a cover which is about 100 times larger.
Factors Driving the Premium of Your Term Life Cover
While the increase is because of various factors, it is a general increase applicable to every new insurance buyer. The premium for your individual life cover may still vary based on a few key factors. The amount you pay out is often based on your age, the type of coverage you want, your lifestyle choices or your career choices.
Age is one of the primary factors determining your term insurance premium. Your age determines the likelihood of claim on the life insurer. Since younger people carry a lower risk of death the premiums are low. Premiums increase as you age.
This is why you should purchase a term life insurance when you start earning.
Lifestyle habits such as alcohol and tobacco usage increase the risk of contracting a life-threatening disease. Thus, if you are a smoker you may have to spend a little more on the term life cover.
Health plays an important role in the cost of your life cover. Your premium may be higher if you have an existing health condition, major physical deformity or disability.
Although the insurer may ask for a medical test to determine your present health status, you will also fill the family history in the application form.
Life insurers divide the occupational hazard on life between three categories.
- Highest Risk & Premium: Categorises all occupations involving high-risk physical labour
- Medium Risk & Premium cost: All occupations which require specific skills and working with dangerous tools but not hard physical labour.
- Low Risk & Premium: All office or desk jobs, which do not involve mechanical tools or physical labour.
Points you need to consider while looking at various plans.
- Do your research: As an applicant for life insurance, you should do thorough research to help you save money and receive maximum benefits. Look for features which add to your comfort during the policy tenure and the comfort of your loved ones at the time of claim.
- Check the Claim Settlement Period: The best term insurance plans offer a single day claim settlement for policies which meet the criteria.
- Don’t Hide Any Information: You should fill the application form in detail and to the best of your knowledge. Misinformation can lead to the rejection of claims later.
If you are salaried the best way to pay the regular premiums is on monthly basis. You can also opt for Electronic Check System (ECS) payment that will periodically debit your bank account with the required insurance amount. Also, you can choose to schedule a payment through net banking that will allow you to make a premium payment with the convenience of interval payments.
Regardless of how much premium you are paying having insurance is of paramount importance and you should not delay getting one. Your life insurance premium may sound like a payment today but will be of great help in case of your unexpected demise. They will offer solid support of financial stability for your loved ones.