Life Insurance Premiums Increased! What Should Policyholders Do?

In a move to address issues such as inflation, and reinsurance costs, leading life insurers such as Max Life Insurance, Bajaj Allianz Life, and ICICI Prudential Life Insurance are going to increase term rates by two to 10 per cent, according to sources in the know of the development. Recently, Tata AIA Life Insurance and HDFC Life Insurance have already increased term rates, according to media sources. When contacted, Bajaj Allianz Life and ICICI Prudential have not commented on the story.

While Bajaj Allianz will increase term rates by two to three per cent, ICICI Prudential Life will increase rates by three to five per cent. Tata AIA has increased rates between three to 10 per cent. Tata AIA has also not responded to an email seeking confirmation on the rate hike. Max Life Insurance has increased rates in the range between one to six per cent across different age brackets.

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Says Aditya Mall, Appointed Actuary, Future Generali India Life Insurance Company: “Over time, awareness of term insurance has increased and so has the preference of duration of term cover. Policyholders are now preferring to have policy terms exceeding 30 years or to cover their whole life as well. This thus makes the term insurance premiums highly sensitive to fluctuations in long-term interest rates. When the interest rates decrease, the cost of term insurance generally rises. Additionally, the increase in premiums can be attributed to inflation adjustments, expanded coverage in tier II and III cities with higher risk profiles, and increased reinsurance premiums. The adjustments in term insurance pricing aim to address these factors, ensuring that the rates reflect the current economic and demographic landscape.”

“While some insurers are likely to increase their premiums in the future, multiple factors contribute to this trend. These factors include falling bond yields and adjustments in reinsurance rates. The rise in premiums can significantly impact policyholders' overall financial portfolios,” adds Rakesh Goyal, director, Probusinsurance.com.

What It Means?

Higher premiums can mean that investors need to allocate more of their income toward insurance payments, which can strain their budgets. “To accommodate the higher premiums, they might need to cut back on other expenses or investments, potentially jeopardizing their financial goals. Additionally, some investors might opt for lower coverage amounts to keep premiums affordable, which could lead to inadequate protection for their loved ones,” says Goyal.

Plus, in India, the awareness related to term insurance is very minimal. Such an increase in premiums will lead to a decrease in their customers. “The income level of people in India is low when compared to developed countries. A large group of individuals belongs to the middle-class and lower-middle-class categories. So the cost factor will become an issue for them,” says Naval Goel, founder and CEO, PolicyX.com.

What You Should Do?

However one needs to remember that term insurance is required for protecting the family in the unfortunate event of the demise term insurance is for protection.

We need to assess the protection we want and take the insurance that is needed, irrespective of whether it has become somewhat costlier than before. “We eat even if the foodstuff becomes more expensive, right? This is something like it - we cannot avoid it. In any case, insurance rates are very low and a five to 10 per cent increase would not be too much,” says Suresh Sadagopan, founder and principal of Ladder7 Financial Advisories, a financial planning firm.

For a 30-year-old man who is a non-smoker a term issuance plan can be bought for as little as Rs 15,000. However, a money-back policy that also provides payouts will have a much higher premium for similar coverage. Experts always advise not to mix insurance with investment. One should instead go for a term plan and invest the rest of the money in equity mutual funds which can potentially give higher returns over a longer term.

“Since the life market is de-tariffed, different Insurers charge different rates, despite insurers having announced hikes in the rates, customers can compare between different life insurers and make a choice and I am sure they can still find a better deal,” says Sumit Bohra, President, Insurance Brokers Association of India (IBAI).