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Term Insurance Price Hike: Here’s Why!

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August 04, 2021

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Term plans are the ideal life cover policy option for people of all ages. These plans come with affordable premiums and offer high sum insured amounts. Terms plans are a crucial component in every sound financial plan. Let’s take a look at why so many people opt to purchase term plans.

What Makes Term Insurance So Appealing?

  • Stability Against Uncertainty

    Life is unpredictable. We never know when or how an accident could turn fatal. If something happens to you, your family might be left with financial uncertainty. People purchase term plans since they provide financial stability to their loved ones after a tragedy.

  • Customised Cover

    Term plans today can be customised to meet your unique needs. Every insurance provider offers a variety of riders or add-ons that will boost your overall coverage. People prefer to purchase term plans now since they can also enjoy critical illness cover or disability cover. Other features like income payouts and a return of premium rider provide enhanced maturity benefits as well.

  • Payment Flexibility

    Term plans do not require you to pay a large amount of money upfront. You can make monthly premium payments, which are much easier to work with. This flexibility allows you to manage your finances with ease while still providing you with the life cover you need.

  • Pick Your Payout

    You can also pick how you’d like your nominee to receive the payout from the policy. Instead of a lump-sum payment, you can choose for your loved ones to receive regular monthly or annual payouts. These regular payments can act as an income replacement. They also provide your family members with some peace of mind since they know they haven’t run out of money.

  • Tax Deductions

    Term plans, like most other insurance policies, provide tax benefits. The premiums you pay for the upkeep of your policy get deducted from your taxable income under Section 80C of the Income Tax Act, 1961. The payments your nominees receive are also tax-exempt under Section 10D of the Act.

Cost of a Term Insurance Plan

Term plans are known for being pocket-friendly. They provide high sum insured amounts for incredibly low monthly or annual premiums. Some plans offer life cover of up to INR 1 crore for as little as INR 500 per month! Since term plans do not provide significant maturity benefits, the entire premium amount works towards giving you the cover you need. Unfortunately, term insurance premiums will increase in 2021.

Who Decides the Price for Term Plans?

Companies known as reinsurers help decide the cost of term plans. Essentially, reinsurers provide insurance to insurance companies. They absorb costs and enable insurance providers to offer more products to the masses. When it comes to term plans, reinsurers end up with all the risk. Currently, reinsurers consider that only 20-25% of term plan owners will actually have a claim against their policy. They use this mortality rate to work backwards and decide on the minimum cost for term plan premiums.

Why Is Term Insurance Becoming Expensive?

Over the last few years, reinsurers have noticed a discrepancy in their estimated mortality rate and what is happening today. Poor habits and sedentary lifestyles have led to a higher number of people suffering from co-morbidities, which means they’re at a higher risk of dying during the policy term. Looking at the increased risk, key reinsurers in the market decided to increase the cost of term plans for their insurance companies. Insurance providers will likely pass on this increased cost to customers. So, we can expect term insurance premiums to increase in 2021.

Effect of the Term Insurance Price Hikeon End Consumers

Reports estimate that premiums could become up to 20% more expensive. While 20% might sound exorbitant, we have to remember that term plan premiums are low to start with. So, a 20% increase on a monthly premium of INR 500 would amount to INR 600. That’s still a very affordable amount to pay for your life cover.

Some insurance providers started revising premium rates in January 2021, while others were waiting for the new financial year to start. The second wave of the coronavirus pandemic has put some hikes on hold for now, but the prices will rise soon.

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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