HDFC Life indicates gradual rise in term insurance premiums: Here's what you must do

Term life insurance premiums have been soaring upwards since March 2020. The life insurance industry has increased term premiums three to four times in two years.

The most recent round of hike was in December 2021, when ICICI Prudential Life Insurance increased its term  insurance premiums by up to ten percent, while HDFC Life raised its prices by 15-25 percent across age-groups. In January, Kotak Life Insurance indicated that it could hike its term insurance premiums soon. The companies resorted to this action in the backdrop of rising COVID-19 death claims and pressure from reinsurers to hike the rates.

Also read: COVID impact: Buying a term insurance policy has become costly and tedious

Pace of hikes to slow down going forward

Moreover, HDFC Life’s MD and CEO Vibha Padalkar on Friday said that next two quarters could see gradual increase in prices. “However, not as much as what you saw in the last years. So far, the prices have gone up by 40-50 per cent over last two years,” she said. In the short term, the company expects marginal or no hikes in reinsurance rates, which could provide some breather.

Since 2010, Indian life insurance policyholders have been accustomed to seeing life insurers vying with each other to attract customers, particularly the young and well-heeled, with lower premiums. “A few years ago, prices were lot higher and then fell by 30 percent. Now, they have started catching up. However, they have still not caught up with the inflation rate,” Padalkar said.

Term insurance plans’ popularity

Competitive pricing and increase in awareness has led to Rs 1-crore term cover becoming the bare minimum safety net for many urban, high-earning individuals. Unlike savings-cum-insurance policies, pure protection term plans do not offer any maturity proceeds – the sum assured chosen is paid out to the policyholder’s dependents in case of her death. The purpose is to replace the life assured’s income and provide financial security to her family members. And, the devastating impact of COVID-19 has only under lined the Importance of the simplest and most cost-effective form of life insurance further. Insurance players say that term insurance premiums in India are not expensive, despite the series of hikes in the last two years.

To buy or not to buy

Your decision should hinge on your requirements, rather than term insurance prices alone. An adequate pure protection cover is a must in every individual’s portfolio. You should take into account your income, your family’s needs and goals as also your assets and liabilities before computing the ideal figure. “You should also factor in spouse’s status – if he/she draws income, your term cover requirement could be lower,” says Pankaj Mathpal, Founder, Optima Money Managers. But as simple a rule of thumb, you should have life cover of at least 10-15 times your annual income.

“After a thorough study, if you feel your current cover is inadequate to ensure financial security for your family, you can look at buying a term cover now,” says Pankaj Mathpal, Founder, Optima Money Managers. As you grow older, the premiums go up in line with age and also lifestyle diseases acquired over the years. Post-COVID-19, companies are also resorting to additional scrutiny while issuing policies – your COVID history, income levels and education qualification constitute important parameters today.

Life insurers charge lower premiums to younger and healthier individuals and this premium is locked for life. You also need to go beyond premiums while choosing the right life insurance company. Claim settlement ratio – which indicates the number and amount of claims paid vs claims received – is one of the key metrics to consider.