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Changes in Term Insurance Premium - What Drives the Term Life Premiums Up or Down

dateKnowledge Centre Team dateDecember 06, 2020 views190 Views
Changes in Term Insurance Premium - What Drives the Term Life Premiums Up or Down

Recently we have seen much upheaval in the world at the behest of the pandemic, and other unexpected developments. Some of them have been global while others are limited to specific areas and communities in the world.

The pandemic had many risk management companies and organisations scrambling for ideas. Insurers accelerated technological adaption to stay relevant in the new reality. Also, health and death claims rose all across the world, resulting in a premium rise within the year.

The Concept of Insurance

Life Insurance is an amazing concept of risk management. It is a community product, and the larger the area of adaption, the better it works. The cost of the insurance is determined in multiple stages, and you can further make different classes of the risk groups.

For example, consider a small town of 100 families. Flood destroys houses of two families on an average every year. The destruction is random and any two houses may receive the damage.

The town can save its population from gradually going bankrupt by offering insurance to every family. If the repair cost for one house is Rs. 10,000, the 100 families can collect Rs. 20,000 and create a pool to assist the families in distress.

In this case, if in any year less than two houses are damaged the premiums (contribution of each family) for the next year could be lower. And if more than two houses are destroyed in a year the premiums will have to increase.

Reasons for Term Insurance Premium Increase

Now, this is a small town, if you extrapolate such towns across a larger area, you can imagine different towns with different populations. All these different towns will have a different number of houses being damaged due to a number of natural causes.

If the same insurance pool has to cover the risk of more than one town, a small part of the premium cost of all the towns will have to be shared. Thus, if out of the several towns covered by the insurer if one experiences higher claims, it will affect the cost for other towns as well.

Life insurance premium, as well, works on similar principles. However, the small difference is, the insurers worldwide are connected through re-insurers. Re-insurers are global companies which insure the risk of primary insurers.

Thus, there could be two reasons for a possible premium increase:

  • Increased number of claims at the local level
  • Higher re-insurer costs

Any change in these two factors will affect the prices in general and for the whole group.

Does the Increase Affect Existing Policyholders?

The short answer is ‘no,’ the increase will only affect the new term insurance policies. So, if you are paying a premium for an existing policy it will remain the same. However, when you buy a new term plan, the new premiums would be as per the new rates.

However, if you are trying to apply for sum assured increment on your existing policy, you may enjoy the discounts, being an existing customer. Few insurers like Canara HSBC Oriental Bank of Commerce Life Insurance offer life-stage increment option on their term insurance plan iSelect Star.

You can request for an increment in the life cover amount of the plan after marriage, childbirth or home purchase using a home loan.

How To Lower Your Premium?

Since the increase affects the new subscribers, you should know what will affect your individual life cover premium. Although a blanket increase in mortality premium will affect the price you pay for the life cover, you still need to consider the following factors:

  • Age
  • Health
  • Lifestyle

If you want your life insurance premiums to be lower, you need to buy the cover at an early age. While health is in your control to some extent, lifestyle habits like smoking and drinking are completely in your control.

In the case of an existing health condition, the insurer may charge an extra premium. However, if you are the primary breadwinner of your family, term insurance is all the more important for you.

So, the only way to have a lower premium for your life cover is to buy it at a young age and maintain a healthy lifestyle.

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Frequently Asked Questions (FAQs) for Term Insurance

This being a term plan doesn't offer any payout after maturity or expiration date.

Each insurance company has its own term insurance premium calculator. If you want to check out the premium quote, go for the iSelect Star term plan calculator. It gives a premium amount based on your age, gender, habits, education, and annual income.

You can purchase an iSelect Star term plan anytime between 18 to 70 years of age.

It depends on your needs. For example, if you want to cover a child's education or wedding expenses, you have to include them in your coverage. Your premium will be calculated accordingly.

If your key purpose is to give your Family financial protection, go for the term insurance plan. And if you want some savings, in the end, go for a traditional life insurance plan.

Go for at least 12 times cover than your annual income. Or you can go as far as 20 times coverage as per your needs.

The right time is when you don't have anything to keep your Family safe from financial storms, and they rely on you for financial needs.

If you are unable to make the payment or suffering from a terminal illness, a term plan pays a part of the sum insured to treat your disease.

Term insurance riders are attachment or endorsements made, while taking the term insurance policy, as a supplementary coverage to policyholders. Apart from the core death benefit, term insurance riders offer below-given additional benefits:

  • Accidental Death Rider When a person suffers from a terminal illness, his/her family ends up spending a significant amount in treatment and medical expenses. Accelerated death rider pays a part of the sum insured in advance to cover such costs and save the family from running out of cash.
  • Accidental Disability Rider If the policyholder can't pay the premium because of an accident or permanent disability, a sudden disability this pays the premium on behalf of the policyholder till completion of policy term or for a defined duration.
  • Critical Illness Rider If the insured person gets a heart attack, cancer, or any other critical illness, this rider pays a lump sum on valid diagnosis.
  • Premium Waiver Rider If the policyholder is unable to make payments due to income loss or disability, a premium waiver rider waives off all future premium payments. And the term policy remains active until the expiration date.
  • Income Rider: The rider ensures that your family receives regular income + sum insured in case of unfortunate demise of life insured.

Anyone can go for life insurance as it offers some savings after the maturity date, but it doesn't cover the protection of your family . The best term insurance plan is solely designed for taking care of loved ones if something happens to you. Term plans act as a shield between your family and sudden financial fall. They make sure that your family lives a healthy life even after you. With a little amount paid per year, you can be worry-free from the family's financial conditions.

Questions that you need to ask while buying Term Insurance?

  1. 1. Amount of premium you have to pay based on your age, habits, education, and monthly income
  2. 2. The total number of benefits covered in the term plan. Do they include benefits that you care about the most?
  3. 3. How to save money on tax if you pay for the term plan?
  4. 4. Do they offer regular income options?
  5. 5. Can you change the coverage and premium in the future?
  6. 6. Does the claim consider valid if death occurs outside India?
  7. 7. Which kind of death is not covered by insurance?
  8. 8. Can NRIs take term insurance? If yes, what are the conditions?
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