Are Term Insurance Rates Increasing?

Term life insurance is the simplest type of life insurance policy that charges specific premiums from all policyholders. In return for the premium, the policyholder receives financial coverage for their nominees after their demise. Policyholders need to pay regular premiums to keep their plan active.

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In recent months, there has been an increase in the rates of premiums for term life insurance. A hike of 2.79% has been seen after April 2021, which is the second quarter of the year. Term life insurance premium rates have experienced an increase in rates after the second wave of COVID-19.

Are Term Insurance Premium Rates Increasing?

At the onset of the financial year 2021, Indian insurers have increased term insurance prices by around 3%. It is further expected to rise to 15% to 20%, which is considerably higher. This sudden surge is a result of the ongoing pandemic situation in India. 

After the severe impacts of the second wave of COVID-19, mortality rates have been at an all-time high in the country. It has become the primary reason behind the rise in rates. 

Mostly, all prominent companies have contributed to this hike. The rest of them are expected to do so by the end of this year or so. The increase would be uniform for all the companies, but the exact rates of premium would vary for different companies. In recent times, this is the second incident where term insurance prices have escalated. 

Should You Buy Term Insurance Now?

It is always favourable to buy term life insurance for safeguarding your family after your demise. Despite the price rise, term life insurance is a necessity for everyone. The rising rates of premiums must not deter you while purchasing financial coverage for your loved ones. 

Before purchasing, make sure you are fully informed about hiked rates of premium. This would help you to plan your finances accordingly. Also, forecasting your future expenditure would be affected by proactive planning of premium.

People who have policies bought before March 2021 will not have to pay increased premiums for their existing term insurance plans. However, those currently planning to buy it must not be discouraged by the increased prices. All insurance companies have term plans that suit every pocket. This surge could be seen as profitable for the companies, premium rates in India are some of the lowest in the world. 

Why Are Companies Hiking Term Insurance Premium Rates?

Besides multiple unfortunate casualties, COVID-19 has disrupted every other function of our society. From health to the economic crisis, it brought us all. It later became a crucial reason for the price hike as well.

Almost every insurance company has contributed to the premium rise till now. This has come with several problems for people who are finding it difficult to adjust to the new prices. This forces us to look into the actual reasons behind the surge. 

  • The primary reason is the unexpected second wave of the COVID-19. The large number of mortalities in such a short time compelled insurance companies to revise their premium rates for term life insurance plans.
    Due to the increase in mortality rates, the prices of term life insurance products have been affected. Insurers began dwindling in the scenario and have incurred losses. This is why they raised premium prices to stay afloat in the market.
  • The second important reason behind such high prices is the elevated rates provided by reinsurance companies. It is common knowledge that all insurance-providing companies get their plans reinsured to mitigate their risk of incurring losses in the future.
    As of last year (2020), reinsurance companies had already increased their premium rates. These hikes were initially endured by insurers while bearing huge losses on their term life insurance policies. In the new financial year, insurers were set to change their pricing for premiums and did so with immediate effect.
  • Another important reason behind this scenario is the tough competition between insurance companies regarding their premium prices. There is a barrage of insurance companies providing financial services in the country. Each of them is offering several different types of term insurance plans with varying ranges of premium rates as per the market fluctuations.
    The aggressive competitive prices of term insurance premiums have led companies to decide upon changing their pricing strategy. This price rise was long overdue as India has one of the lowest premium rates in the world.

Benefits of Increasing Term Insurance Premium Rates

While causing difficulties with the general public with increased rates, the hike in term insurance premium rates comes with its advantages. Decisions such as this price hike are not reached upon in a matter of weeks. 

It is after great evaluation and market analysis that the insurers reach a point at which they want to raise premium prices, knowing full well that it would cause issues with people buying term insurance.

Some of such benefits as to why you should consider these increased rates advantageous are as follows:

  • The first and foremost benefit is for the insurance providers. By increasing premium rates, the number of defaulters could be considerably lowered. The risk of people not paying their premiums on time may also be lower.
  • The term insurance premium price rise is beneficial for the economy as well. As mentioned before, India is one of the few countries in the world which offers such low premium rates for term life insurance. If policyholders pay more money in the form of premiums, the economy would have a positive flow of funds that further contributes to strengthening the country’s finances.
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  • Q. I bought term life insurance in March 2021. Would the new prices affect my premium rates?

    Ans: The revised rates of premiums for term life insurance have been applied from the financial year 2021, i.e., from April 2021. Policies that have been bought before that would not come under those to pay higher rates. Therefore, you would not be liable to pay higher premium rates.
  • Q. What is reinsurance?

    Ans: Reinsurance is a type of practice where insurance companies, to reduce their risk, transfer some part of their portfolios to other companies so that their investment is safer. Companies that offer reinsurance charge premiums from insurers in return for risk mitigation.
  • Q. What does term life insurance cover?

    Ans: Term life insurance is a way to protect your loved ones in case you pass away. A typical term life insurance covers all the needs and requirements which would arise after the policyholder’s death. 
  • Q. Which were the four major insurance providers which hiked premium prices for term life insurance?

    Ans: On April 20th, 2021, four major companies changed their pricing. HDFC Life Insurance, ICICI Prudential Life Insurance, TATA AIA Life Insurance, and Max Life Insurance. All the other companies in the country followed suit after the initial price rise.
  • Q. How does one’s life expectancy affect premium in the case of term life insurance?

    Ans: Insurers decide upon the premium of every policyholder after carefully analyzing several factors such as age, income, existing ailments, lifestyle, etc. A person’s age, existing diseases, and lifestyle denote their life and how long they would live a healthy life. The life expectancy of a policyholder decides their risk profile, and insurers grant low premium rates to people who have a high life expectancy.

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