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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) 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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