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Why Has the Term Life Insurance Premium Changed? How Does it Affect You?

dateKnowledge Centre Team dateDecember 08, 2020 views189 Views
Why Has the Term Life Insurance Premium Changed? How Does it Affect You?

“The uncertainty of life got me thinking about the importance of constants in our lives.” So said Michele Scott, author and playwriter. Our lives are about securing life through possible uncertainties, and term life insurance is one tool, which allows the same.

You must have experienced the uncertainty of life through the experiences of others. Did these experiences induce you to secure your life or create a buffer of protection to deal with the possible uncertainties?

If it did, you must have considered term life insurance as one of the ways to protect your family’s financial life. This is especially important if you are the sole or main earning member of the family. Recently the premium growth of term life insurance made headlines, and if you are worried about the following:

  • Should you worry about premium growth?
  • How does it affect your existing term life cover?

Rest easy as we answer your queries and clear the doubts.

Why Premium Growth?

To understand the reasons for this, you need to understand how the premium rates are determined. Generally, any insurer works on a concept of shared risk.

For example, imagine a village with 100 people with the same income and same age group etc. The village is close to a river. Every year, the river gets flooded and two houses are washed away. It is unpredictable which 2 of the 100 gets affected.

To deal with this, the village sets up a plan. Every year, every house gives a particular amount which is equal to the amount of how much it takes to build 2 houses.

The first year Person A and Person B get affected and they are reimbursed with the corpus that the whole village has contributed.

In the second year, Person C and Person D get the benefit and so on. Now imagine that one particular year, there is a massive amount of rain and 4 houses are affected.

Then the amount given to the 4 houses is half of the amount given to the first 2 people. To ensure all 4 houses are covered in the same amount as was done earlier, every house has to pay more.

Term Insurance premiums rates are similarly determined by statistics and mathematical calculations based on their calculation of risk. The higher the risk of the adverse event, the higher the premium has to be.

There are two types of factors which affect the premiums:

  • Individual Factors: These factors lead to variation in individual premiums. You have some control over these factors individually.
  • Systematic Factors: These factors can affect the premiums in general for the whole population or a specific group. Individually you cannot influence these factors.

Individual Factors for a Lower/Higher Premium

LIFESTYLE: SMOKING OR DRINKING: Smoking or drinking are seen as increasing the likelihood of ailments and hence are seen as having a higher risk.

OBESITY: Obesity has been known to affect health and cause health problems like osteoarthritis, high blood pressure, stroke and heart diseases, resulting in higher premiums.

PROFESSION: The premium for workers in hazardous industries such as mining, oil and gas is more than people in risk-free professions.

DURATION AND VALUE OF POLICY: The longer the duration of the life insurance policy, the larger the sum assured, the higher the premium. This is because the longer-term ad larger value transfers more risk and responsibility to the insurer.

Systematic Factors Affecting to General Premium Growth

AGE: The premium rates increase as age increases. This is because it is generally seen that the likelihood of a young person dying or contracting a life-threatening disease is much lower than that of an older person.

FAMILY HISTORY: Hereditary diseases like cancer and heart ailments make you more vulnerable and increases the likelihood of you contracting the same, making your premium higher.

UNEXPECTED EXTERNAL CIRCUMSTANCES: Unexpected crises like earthquakes and pandemics like SARS and COVID 19 affect the overall expected risk and an increase in the number of people being affected. This also increases the premiums for the years following such an event. In the example given earlier, the flood affecting 4 people instead of 2 made the insurance company charge more to each person paying insurance to balance out the requirements.

An insurance company will factor in individual factors. However, their premiums also depend on the premiums offered to life insurers by the re-insurers. Re-insurers will factor in the general growth points and their changes will have a blanket effect on the retail life insurance premiums.

This time the premiums of the term life insurance have changed due to the changes brought in by the reinsurers.

Even with the increased premiums, terms insurance plans like the iSelect Star Term Plan, offered by Canara HSBC Oriental Bank of Commerce Life Insurance, is a good option as it gives you immense flexibility in terms of premium payments as well as that of the assured sum. Also, purchasing the same online makes the premiums lower.

Therefore, even with the changes to the term life insurance premiums, it remains one of the best options for you.

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Frequently Asked Questions (FAQs) Related to Life Insurance Policies

The premium is one of the most important factors to consider before buying a life insurance policy. Many people buy a life insurance policy with a high sum assured but are unable to process the premiums for the entire premium payment tenure. You can get a better idea of the premium outgo with the premium calculator available in the 'Tools and Calculator' section of www.canarahsbclife.com.

Life insurance plans come with several riders which increase the efficiency of the policy for the buyer. For instance, if you have a history of terminal illness in your family it would be advisable to opt for terminal illness rider with your term insurance plan. Riders or add-ons help in customising the standard policy benefits for the requirement of different families. The iSelect term insurance plan comes with a built-in cover for terminal illness, and option for protection against accidental death or disability. You can also opt to cover your spouse's life under the same policy by paying an additional premium.

Life insurance companies calculate the premiums based on several factors such as age, gender and occupation.

Age: It is one of the biggest factors that influence life insurance premiums. Premiums tend to be low when the life insured is younger as the chance of contracting diseases is low. Young people also opt for the best life insurance policies with longer tenures and pay premiums for a longer duration, which makes the policy cheaper for young people.

Gender: The insurance premium for women is generally lower when it comes to life insurance plans. Women live longer and pose a lesser risk of a claim leading to lower premiums for them.

Lifestyle habits: The premiums for people who smoke or drink is always higher due to higher health risks.

Policy term: Policy terms are also taken into consideration by insurers while deciding the premium amount. Life insurance policies with longer tenure are cheaper as compared to short-duration policies.

Mode of purchase: The platform that you use to buy the best life insurance policy also determines how much you will have to pay for the plan. People who buy life insurance policies online have to pay lower premiums as compared to offline policies.

Occupation: The nature of your work is an important factor that influences the premium amount. Certain occupations like shipping and mining are considered more dangerous as compared to jobs in services industries. The insurance premium rises with the risk profile.

Processing life insurance claim is a transparent and smooth process with Canara HSBC Oriental Bank of Commerce Life Insurance.

In case of the death of the life insured, the nominee will have to intimate the company by filling a Death Claim Form and sending it to the nearest branch office.

Once the form is received, the claim is registered by the insurer.

After the registration of the claim, the company will send the claims pack along with the related forms such as physician’s statement form and employer certificate that need to be filled.

Along with the duly filled forms a few documents such as original [policy document, death certificate, copy of bank passbook, hospital or treatment records, photo identification and address proof have to be provided.

The claim is processed on the submission of relevant documents. Once the documents are verified, the claim amount is released post all due diligence.

Household expenses rise with age. The cost of children's education increases along with other lifestyle expenses. The iSelect term plan offers an option to increase the cover according to the life stage. If opted, the insurance cover increases by 25% at every 5-year terminal till the 20th policy year.

Even though a life insurance policy is bought to protect your family in your absence, there are chances of the claim being rejected due to several factors.

False information: If the policyholder provides false information or conceals important information while buying the life insurance policy, the insurer has the right to reject the claim after his/her death.

Type of death: Deaths due to suicide in first policy year, intoxication or pre-existing disease is not covered under life insurance plan.

Premium payment: The payment of premiums on time is of utmost important to avail the benefits of life insurance. Life insurance policy may lapse on the failure to pay the premiums

Nominee details: A life insurance company can put the claim on hold if the nominee details have not been filled or not been updated by the policyholder.

Suicide: If the life insured commits suicide within 12 months of buying the life insurance policy, the insurance companies generally pay 80% of the total premiums paid.

Buying the best life insurance plan online is not only safe but a better option. Online life insurance policies have lower premiums and the individual is not required to visit the insurer's branch or a bank. The best life insurance policies online insurance offer higher benefits. Customers should, however, buy online life insurance policies only from credible insurers and should check for SSL certificate on the website to ensure that the website is legitimate.

The cost of life insurance policies varies depending on factors like age, gender and occupation. The average cost of life insurance plans, especially term plans, is very low compared to the amount of coverage offered.

An individual is allowed to have multiple life insurance policies. People opt for more than one life insurance policy to increase the cover or avoid claim rejection. In case of multiple life insurance policies, even if the claim is rejected by one insurer, the beneficiaries may receive the benefit from a different insurer.

Life insurance policies are of different types. In case of unit-linked or endowment policies the policyholder receives the maturity benefit at the end of the policy term. However, in the case of term insurance plans, there are no maturity benefits. The death benefit is only paid out after the death of the life insured.

When you buy a life insurance policy, the insurance company asks for the nominee details. Only the person named as the nominee in the life insurance plan can cash out in case of death of life insured.

A life insurance policy is generally taken for a specified period. After the policy duration of a term plan gets over, the policy simply terminates and ceases to exist. However, in case of unit-linked plans or endowment, you can use the policy as a tool for retirement planning and the accumulated corpus is used by the insurer to pay you monthly amounts for your entire life.

If a policyholder purchases a term plan for 25 years and dies during the policy term, the beneficiary receives the death benefit. In case of iSelect term plan, the policy provides four payment options to the beneficiaries. If the regular payment option is chosen, the policy works as a source of regular income.

It is a popular misconception that life insurance plans are only for accidental deaths. A term life insurance plan like iSelect Star Term Plan also covers terminal disease along with death. A terminal illness cover is important as health insurance pays only for the cost of treatment and hospitalization, but a terminal illness cover pays you a lump-sum amount which takes care of other expenses. On the other hand, unit-linked policies such as Invest 4G cover death and also provide decent returns for other financial goals such as buying a house of child's education.

It is ideal to buy a life insurance plan in your early 20s because it is the time when people have just started with their professional life and so there are lesser responsibilities and financial liabilities to take care of. Also, if you buy the best life insurance plan at this age, you will be paying relatively lower insurance premiums since it’s a due fact that mortality rate in case of young people is low. And that is why life insurance companies offer lesser premium rates to younger people as they think that they are most likely to be fit and healthier with less chances of filing a claim in future.

Once you have cancelled your life insurance policy, you will instantly lose your life insurance cover. Afterwards, your insurance company will get in touch with you and ask for valid reasons regarding the cancellation of your policy. In case you cancel your life insurance policy within the grace period, i.e. 15 to 30 days, depending on your insurer, then insurance company will reimburse the premium amount paid by you. But, no refunds will be paid to you if the policy is cancelled after the grace period.

Yes, you can take life insurance under Married Women’s Property (MWP) Act, 1984 only if you are a married man and a resident of India. Buying a life insurance plan under MWP Act would be helpful in saving your family’s financial well-being when you are not around. As per this policy, only wife and children would be eligible to receive the death benefits. You can also buy a policy if you are a widower or a divorcee. However, in that case, you can give your child’s name as your beneficiary. It is very simple to buy a life plan under MWP Act. All you need to do is to fill up an MWP addendum while purchasing an insurance policy.

Yes, there are different payment options for you to pay premiums. Here’re some of them

    1. Regular premium payment option – This premium payment option allows you to pay premiums equal to your policy term either monthly, quarterly, half yearly or annually.

    2. Single payment option – Through this premium payment option, you can pay the lump-sum amount in one single payment.

    3. Limited payment option -In this premium payment option, you can pay premiums for a specific period of time less than policy term either monthly, quarterly, half yearly or annually, but benefits of insurance can be enjoyed for a longer period of time.

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