Hyderabad: The premiums for term insurance plans, which currently are the cheapest life insurance cover, are likely to go up from April as reinsurance rates have been raised for the insurance companies, according to Santosh Agarwal, Chief Business Officer, Life Insurance, Policybazaar.com.
The term insurance market in general has seen the premiums going down in the past few years due to competition. However, the reinsurers have increased the premiums for the companies and that will be passed on to the end-users, she said.
Reinsurance premiums are paid by the insurance companies for buying a cover against providing protection for large risks.
“Those planning to buy a term insurance should act now. Once they buy, the premium stays the same throughout its tenor. New rates will come into effect from the next fiscal,” said Agarwal.
The underwriting is changing as new data points are emerging. Since the term insurance profile is better than that of the average population, the insurers earlier applied a discount and assumed that the mortality rates would be lower than those assumed by the LIC mortality tables.
Earlier, various players used the LIC mortality tables for calculating the premium as there was no other data that was available. If the state insurer pegged the number of deaths during a certain period of time at ten for the 10,000 people covered, the private insurers assumed that only two deaths would happen, she explained.
The industry now has access to new data which stressed that the mortality number was higher than the figure used in premium calculation. As a result, the payouts have increased and as such current premiums are not viable. The reinsurers are reworking the premium rates for the insurance companies, she explained.
Agarwal, however, said the hike in premiums would not be uniform and would vary with the company, plan offered and other features. The old rates will stay for this financial year as many people would look to buy covers for tax planning purposes, she said.
The premiums for term plans in India are about 30 per cent cheaper compared to many other economies, she said adding that the prices are likely to go up by upwards of 15 per cent and some companies may absorb the hike as well.