Get ready to pay more towards term insurance1 min read . Updated: 07 Feb 2020, 04:19 PM IST
- Term insurance premiums may go up due to stress in reinsurance business
- Spike in premiums may drive away potential buyers
Term insurance, the basic form of life insurance, has become popular, thanks to the online medium. Although they remain a far cry from bundled life insurance plans that most intermediaries prefer to sell, term plans have became popular because they could be bought online and are cheap.
But things are set to change soon.
Term insurance premiums are likely to rise due to increasing stress in the reinsurance business, M.R Kumar, chairman, Life Insurance Corporation of India (LIC) told reporters on Friday.
Kumar said the Insurance Regulatory and Development Authority of India (Irdai) is deliberating on this front and would come out with further details in the next two to three weeks.
A reinsurer offers financial protection to an insurance company. It helps insurance companies mitigate risks and also works with them in the underwriting process to obtain more business.
According to Policybazaar, term plan rates in India over the last decade have gradually dropped. Average term plan premium rates are about 30% higher in most developed countries. For example, a term plan with a ₹2 crore sum assured would cost about ₹14,042 a year, while the same policy costs ₹22,164 in the US and ₹21,915 in Singapore.
LIC (known to offer relatively expensive term policies) too has reduced term plan prices in the last couple of years. "The current term plan costs in India are quite low and with increasing stress, reinsurers will most likely increase their cost price in turn impacting premium rates," said Santosh Agarwal, Chief Business Officer- Life Insurance, Policybazaar.com
The fear is that the spike in premiums may drive away potential buyers. It's important to remember that a term plan, that only charges for insurance and doesn't bundle in any investment benefits, remains the cheapest and the most efficient life insurance product in the market.
Mint Money recommends you take stock of your insurance needs and plug the shortfall through a term plan soon as such plans in India are level paying products. In other words, the annual premium that you pay remains the same through the tenor of the policy.
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