The cut in rates has become possible because the solvency margin for life insurance companies that provide no-frills insurance plans and risk cover against life was reduced by two-thirds by the Insurance Regulatory and Development Authority (IRDA) last year.. This move was aimed at improving the penetration of basic insurance.
However, there are still few companies that charge premia that are not in line the current market trends.
With the IRDA planning to publish a new mortality table in the next couple of months, one can anticipate further rate cuts based on the claim ratio (claims in different age-groups). With increasing life expectancy and advancement of medical facilities and as many as 22 insurers competing for business there is ample scope for premium rates to decline at least for the middle-aged.
Under-insured
Term insurance can be taken to cover the life of self. A joint life cover can be taken with a spouse or business partners. Although term insurance is a traditional product, it is a non-participating plan — meaning that it will not carry any maturity value on expiry. That is, you cannot view this product as an investment; it only covers you for the risk of loss of life during the term of the policy. It is worthwhile to note here that some insurers are selling products which do return the premium, but this comes at a higher premium rate. The term cover required would differ between people based on the risk-taking capacity of the individual in the event of any untoward happening.
Though there is no standard rule, it is advisable to take a sum that would act as an income replacement for the family. It may be advisable to have a cover which is 10-12 times the annual income. Then, if an untoward incident happens, the claim proceeds can be deployed at an interest rate of 8 per cent to meet the monthly expenses of the nominees, without a compromise on lifestyle. An individual can also buy separate term plans to match his/her financial goals.
Due to low awareness levels, the insurance penetration level in the country is abysmally low compared with developed markets . This suggests that many individuals are either unaware of such plans or are under-insured. That term insurance sales account for less than 5 per cent of total sales for insurers tells the story. With equity markets buoyant for the past four years, distributors also prefer selling ULIPs due to attractive commission, thus neglecting the sale of pure term insurance products.
Rate card
Over the past year, premium rates for low insured amounts of, say, Rs 10 lakh, have declined by about 10 per cent. But the rates for higher-end policies has declined significantly by 30-40 per cent. HDFC Standard Life Insurance Company (HDFC-SLIC) has cut premium rates by 30-40 per cent in March for term products according to Mr Paresh Parasnis, Principal Officer and Executive Director, HDFC Standard Life. When asked to comment on the possibility of further reduction in premium once the new table of mortality is announced, he replied that the scope for this may be limited.
A general trend witnessed is that for the age group of 30, the divergence in the premium rates across insurance companies is not very high. For instance, Aviva Life Insurance and Aegon Religare offer a 25-year term policy at Rs 11,361 per annum (inclusive of service tax and education cess of 10.3 per cent) for a male of 30 years, for a sum insured of Rs 50 lakh. For the same cover, LIC charges Rs 14,600.
But the divergence is higher if the policyholder is 50 years and above. For a cover of Rs 50 lakh and a 10-year term, HDFC-SLIC charges an annual premium of Rs 34,865 inclusive of all taxes. For the same cover, Birla Sun Life charges Rs 45,499 and Max New York Life Rs 50,000.
Rider
Term policies also allow you to add other riders or benefits such as critical illness benefit, accelerated sum assured and accident death on payment of additional premium. It is important to note that the rates will get expensive as one’s age goes up.
Hence it is advisable to take cover at an early age and step it up every year at the rate of 5 per cent of the basic sum insured to protect against changes in earnings and living standards
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