Term life insurance premiums have plummeted over the last six years, thanks to increasing life expectancy and fall in reinsurance rates.
Since 2009, term insurance premiums have crashed by as much as 75 per cent as selling has increasingly moved online where prices have gone down by almost 30 per cent, said Yashish Dahiya, CEO of PolicyBazaar.com.
For instance, a ₹1-crore cover for a 30-year-old male cost around ₹30,000 in 2008, but he would be able to get the same cover today for around ₹8,000.
Insurers attribute the increase in longevity (from 62 to 72 years) due to medical advancements as a significant reason for the decline in term insurance premiums. Mortality is one of the key factors used in determining premiums.
“We have seen a 10-15 per cent decline in the premiums rates of online term plans during the last fiscal. Premium rates in the Indian market are now at par with term insurance premiums in countries like Hong Kong and Singapore,” said Sunil Sharma, Appointed Actuary and Chief Risk Officer, Kotak Life Insurance.
The country’s largest insurer Life Insurance Corporation (LIC) has also seen a decline in pure risk premium adjusting for increasing life expectancy, last year. This has also resulted in a fall in reinsurance rates, which are reflected in the latest mortality table as private insurers now have their own experience.
Mortality assumptions“In the last decade, the industry was using LIC’s mortality assumptions for private companies. In the last few years, now that private companies are having their own experience, reinsurers have realised that the segment of customers that private companies underwrite is slightly better,” said Srinivasan Parthasarathy, Chief Actuary and Appointed Actuary of HDFC Life.
Insurers are also willing to give much better rates for online term plans as the customer segment is perceived to be more affluent and there is no intermediary involved in the buying process.
Niraj Shah, Director – Marketing, Strategy & Products, PNB Metlife, said that disclosure levels are higher in the online channel as the customer is purchasing the policy according to his/her own need, enabling finer pricing.
The persistency rates are also significantly much higher for those who purchase term plans online which reflects in the pricing, said Pradeep Pandey, Chief Marketing Officer at Future Generali Life insurance.
Insurers says that for online term plans persistency is above 90 per cent while for other policies persistency levels are around 65 per cent.
Aalok Bhan, Director, Product Solutions, Max Life Insurance, said that policyholders are now able to get a much higher sum assured at a lower premium. Insurers see younger customers buying insurance for higher sum assured for longer tenures.
The competition among insurers has also resulted in new insurers offering lower rates, Bhan added.