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Term insurance: Cover costs may go up as insurers mull premium hike

Casparus Kromhout     March 3, 2021

The core function of insurance is to be able to provide financial protection against any uncertainties. Term insurance in particular is a key factor for social security. It is a pure risk cover where a specified amount is payable on the demise of a life assured.

The pricing for the life cover product is based on the mortality risk of the customer segment. These are based on statistical tables which tend to be dynamic. Another factor that affects the costing of these plans is re-insurance.

In simple terms, re-insurance is where insurance companies insure themselves against events that can cause high claims.

Recently, re-insurers increased their premiums which were hardened further due to the coronavirus pandemic.

Also Read: BT Insight: All that you must know about term insurance policies

The pandemic has brought about a unique environment with increase in the global mortality rates and also the need to factor in further uncertainty. The reinsurers have thus revised their mortality assumptions,

The insurance companies that are currently absorbing the increase in price might not be able to continue absorbing the hike. Thus, it is likely that companies might consider increasing their pricing of term insurance plans.

Term insurance is one of the key factors of financial planning. It provides security for current lifestyle along with future savings. India has recently seen a hike in its share of term insurance policies. This hike has been driven by an increase in awareness amongst customers. The pandemic has also acted as a strong catalyst in increasing awareness amongst customers. The demand for term insurance plans has increased post the pandemic.

Term insurance plans are very economically priced especially compared to the endowment and ULIP plans as they do not have a savings component attached. However, the term insurance market has been very competitive in the past with price drops. The marketing of these plans a few years back was driven by the low premium costs that customers need to incur for a risk cover.Also Read: Insurance 'most preferred' financial product to protect family post-coronavirus: Survey

However, this pitch has been slowly changing, more towards the need of the product with added benefits. The pandemic has brought about a stronger and faster change towards the way the customer perceives these plans as well.

Awareness of the need and importance of these plans has increased tremendously over the last year. Customers are now more interested in factors like the benefits and features they get from their term insurance plans and claims settlement.

A significant change was also visible in the shift where more customers are now proactively looking out for term insurance plans instead of being purposed by the insurance companies. Term insurance is moving towards a pull product in an industry that is traditionally considered a push industry.

Thus, though the premiums for these plans might increase in the near future, we do not expect a strong drop in demand for these products as the customer is now more aware of the need for term insurance and is more focused on benefits and services like claim settlement.

(The author is MD & CEO, Shriram Life Insurance.)


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