To combat tighter underwriting standards, consult a distributor that could point you towards an insurer that covers people with your profile
Insurers have also been tightening their underwriting standards to combat the worse-than-expected mortality experience they have had, compared to their assumptions
Munich Re, the largest reinsurer in the Indian market, has hiked its reinsurance premiums by 30-40 per cent, according to a recent report in Business Standard. It has informed 8-10 insurance companies about the hike. As a result, term insurance premiums are expected to rise. The German reinsurer has also tightened underwriting standards.
The Covid impact
The sale of term insurance gathered momentum in India only over the past seven-eight years. During this period, competition led to decline in premium rates to unsustainably low levels. “Online term premium rates in India were perhaps the cheapest in the world,” says Vighnesh Shahane, managing director and chief executive officer, Ageas Federal Life Insurance.
Amid this scenario, the pandemic occurred. “There was a spike in claims during the pandemic. Especially during the second wave, insurers had a brutal experience,” says Shahane.
Adds Ashwin B, chief operating officer, Exide Life Insurance: “The pandemic has pushed up mortality rates over the past year-and-a-half, especially among people belonging to older age groups.”
When an insurer takes on risk (that is, it provides coverage to customers), it keeps a part of the risk on its own book and passes on the rest to a reinsurer. It pays a premium to the latter for sharing its risk. In the wake of the Covid experience, some reinsurers hiked their reinsurance premiums last year, and one is doing it now. With the cost of reinsurance going up, insurers have no option but to pass on the higher costs to customers.
Quantum of hike will vary
Experts say rate hikes by insurers could range from 20 to 40 per cent. Some insurers may decide that the pandemic will at best last for another six-eight months whereas term insurance is a 30-40-year product. They may believe that once Covid cases decline, reinsurers will revise their rates downwards. Such insurers may pass on only a limited portion of the rate hike to customers. Others may take the view that reinsurance premiums are unlikely to decline in the new future, so it is best to pass on the entire burden.
Bigger players, who provide a larger volume of business to reinsurers, can expect better reinsurance rates from them. They may hike their premium rates by a smaller percentage.
Tighter underwriting standards
Insurers have also been tightening their underwriting standards to combat the worse-than-expected mortality experience they have had, compared to their assumptions. So, in future not only will customers have to pay a higher premium, they may also find it harder to get coverage. Says Shahane: “Earlier, we would go by the customer’s CIBIL score. Now, we also ask for income-related documents. And we also carry out medical tests in case of any doubt.”
According to Ashwin, “Earlier, if a person claimed he belonged to the salaried class, he would be asked just for the name of his company and his salary slip. Now, insurers may ask for the statement of the bank account into which his salary goes every month.”
Three factors have traditionally determined whether a customer would undergo medical testing. The first is age. Until now, insurers were lenient about medical testing for those below 45. The second factor is sum insured. If it is higher, insurers insist on a test. And the third factor is the health history of the person and his family. In the past, insurers would often waive the medical test altogether, or do a video test (which would rely more on the person’s declarations to the doctor rather than any actual medical test) for some. Now, a larger percentage of applicants may be asked to undergo a physical examination. And in cases where risks are suspected to be high, the testing could be exhaustive rather than cursory.
If one insurer refuses, try another
Experts say the days of buying term insurance at the click of a button may have come to an end. Be prepared for the fact that you will be asked for more documentation – related to your income, education, etc. Have them ready before you apply for a policy. Similarly, don’t try to evade medical testing.
Underwriting norms are not uniform across insurers. Some have tighter norms, while others are prepared to take on greater risks and hence have more lenient norms. “If one insurer refuses to cover you, try another. Consulting a financial advisor or an insurance distributor will help. After studying your profile, they could guide you to an insurer that is likely to cover you,” says Naval Goel, CEO, PolicyX.com.
Customers must also be cautious while filling up the proposal form. If somebody else has filled it up on your behalf, go through it carefully before submitting it. “Make the right declarations. If you make the wrong ones, your nominee could be denied the claim,” says Ashwin. Reveal your income, profession and health-related situation truthfully. Even if an intermediary encourages you to file the incorrect details, so that you can get the policy (and he can get his commission), do not go down that path.
Compare to get a better rate
It could be a couple of weeks to one month before the new premium rates kick in. “If you apply right away, you may still be able to get a term plan at the current rates,” says Goel.
Those who have begun earning and have liabilities (or are likely to have them in the near future) should expedite the purchase of a term plan. “Buying at an early age is the best possible method of keeping your premium low. By buying at the earliest, you will lock into the existing rate and become immune to future hikes,” says Indraneel Chatterjee, co-founder, Renewbuy. Term insurance premiums remain constant throughout the plan’s tenure.
Premium rates also vary across customer segments and companies. Visit a web aggregator, enter your profile, and you will get a range of premium quotes. Choose the one that suits your pocket.
If the total tenure of a term product is, say, 40 years, the insurer may offer a variety of premium payment options—10, 20, 30 or 40 years. Choosing a longer premium payment option will mean you have to pay a lower amount each year (though with this option you may end up paying more cumulatively than with a shorter premium payment option).
Going for the monthly payment option, instead of the annual one, would also be lighter on the pocket (salaried class people, who have a regular cash flow, may prefer this option).
Do not defer the purchase of term insurance merely because it has become more difficult and costlier to do so. The sudden loss of the breadwinner by many families during the pandemic has underlined how crucial term insurance is for preserving one’s financial well-being.
Table: Current premium rates for a Rs 1 crore cover
|ICICI Prudential||iProtect Smart Lumpsum Plan||11,694|
|Max Life Insurance||Smart Secure Plus-Life Cover||10,092|
|HDFC Life Insurance||Click 2 Protect Life||11,629|
|Kotak Life Insurance||E-Term Insurance Plan||11,092|
|Edelwiss Tokio Life Insurance||Zindagi Plus||8,587|
Premium rates are for a 30-year-old non-smoker in a metro; Source: PolicyX.com