The cost of term insurance premiums keeps soaring each day. Let’s find out how much of an impact did COVID have on it. Before we address the elephant in the room, how about a brief introduction on “term life insurance”?
Now, you might think of these plans as investment products that just happen to extend the benefits of insurance as well— Like ULIPs and Endowment Policies. You’ll hope to invest some money over a period of 5 or 10 years and hope to get the invested corpus back when the policy matures—of course, with some extra layer of cream on top of it. But, some of y’all would also want a large lump sum to be paid to your nominees in the event you die during this period.
In closing, there is a prevalent myth that all life insurance policies have investing rewards in addition to life coverage. Term Insurance Policies, on the other hand, do not function in this manner. There isn’t much to spend here anyway.
Let’s say you invest in your policy premiums for over a 30- to a 40-year term and then what? You will never receive a dime during that time. The only benefit you may likely notice is life insurance, which implies that if you die, heaven forbid, your family would most certainly get a sizable sum in your name. While this may appear to be a terrible solution at first glance, it is actually one of the finest valuable financial tools available.
So, while those other financial instruments claim to provide both financial options and life insurance, they seldom deliver on both fronts. They often provide meager life insurance policies (Rs. 10–20 lakhs) and returns that pale in contrast to regular mutual funds, for example. Consider this for an instant: Is your life worth a paltry amount of Rs. 10 lakhs? Do you believe your family could genuinely put this money in a savings account for 10 to 20 years and live hassle-free in your absence?
At the very least, it’s a ludicrous proposal, no?
Term Insurance coverage, on the other end, would provide you with a value significantly larger than the Rs.10 lakhs we mentioned earlier. Although there is no investing element, your family will get a large lump sum that will allow them to go through the next 20–30 years of their lives with ease. Even if you don’t live to witness the rewards, you may take comfort in the fact that you’ve covered most of the possibilities. Maybe that’s why, more now than ever, Indians are flocking toward Term Insurance products.
Also, there is the pandemic angle involved. The popularity of Term Insurance products has increased exponentially after COVID hit the coast. And people have begun to recognize the fragility of life itself. But there’s also something else happening in the background. Life Insurers are reviewing whether they ought to reconsider their pricing approach in light of the large number of claims filed in such a limited span of time. And they’re having to accelerate the processing because their insurers, often known as reinsurers, are putting a strain on them.
The fact is, each time a person is insured, life insurance firms in India and worldwide have to reserve a little amount of money. After all, you don’t want to run dry of funds if you have to pay a lot of claims.
However, if insurers lack the financial strength to earmark huge sums of capital, they can shift some of the risks to reinsurers, who will take a portion of the risk in exchange for a minor cut in the premium. And, in contrast to insurance firms, reinsurers are unable to count on anybody else if something goes south. They are the final layer of defense, and they must always have enough finances.
The digitization of the claims handling and the record-keeping system is one of the most significant advances that beamed during the pandemic. Certain pitfalls were pushed to the background as a result of this. Because their activities were digitally recorded, players in the insurance market were forced to be proactive.
Yet, there are several drawbacks to the digitization process. Negotiations, which take up more room in complicated claim procedures, need a lot of two-way communication. Furthermore, the lack of a feedback mechanism from either the insurer or the TPA results in a vacuum in the delivery of required services.
Nevertheless, with Delta and Omicron variants creating mayhem all over the world, some of them are asking insurance companies for a bigger share, particularly from their Indian clientele.
Let’s compare the health insurance situation in the United Kingdom and India. You might say, ‘But hey, the UK does not charge a single penny for you to get treated medically, right?’ But did you know that the UK also charges you for your medical insurance, and deducts the premium from your tax amount towards their centralized care system?
Because, although we don’t have the most advanced insurance sector, premiums in India have stayed fairly affordable. However now with a new wave of covid related claims, this peculiarity may vanish. Reinsurers are demanding a higher cut as we already noted and term insurance prices in India have started rising significantly. Also, customers who have been trying to preempt this price increase have been buying term insurance policies in large. That kind of explains why you’ve been seeing your friend and family talking about term insurance products these days.
So there you have it – Now you know why there’s so much demand for term insurance policies these days.
Also, a quick side note— If you are looking to buy a term policy, or any insurance policy in general, do talk to Ditto, a new-age insurance advisory service that helps people better understand insurance. You can book a free call on the website and get all your queries sorted and even make a purchase if you wish. The website also comes with a spam-free guarantee and you won’t hear from them unless you absolutely want to.