Behavioural biases that damage your investments!

Purchasing term life insurance is quintessential for everyone as it makes an important part of the insurance portfolio to secure the financial exigencies of the family. While the right age and timing of investing in a term insurance plan hold a crucial significance; but now it is of utmost importance to purchase a term life policy for you and your family in November as it can save you a handsome amount of money as well as it will be convenient to obtain the desired one.

This year, the premium prices of the term insurance plan are, once again, set to increase from the beginning of December. As per news reports, the term insurance premium prices can increase up to 30% which translates into an additional expense for the new buyers despite the features, returns and benefits remain the same.If a 30 years old non-smoker plans to buy term insurance for Rs 50 lakh sum insured, it will cost him approx Rs 19000 Premium for next 50 years which is currently available in Rs 15000 approx. According to this, the person will pay almost Rs 2 Lakh higher premium during their entire premium duration.

This price rise is directly caused to the Covid-19 impact as the re-insurer and insurance companies have received. As per media reports, life insurers settled a little over 130,000 Covid-19-related death claims until this October. About 140,000 Covid-19 related claims have been made so far, amounting to Rs 12,948.98 crore, of which 93.57 per cent by volume and 85.42 per cent by value were settled by the insurance companies. Thus this has resulted in a huge burden on them.

Moreover, this is going to be a phenomenon for the next few quarters as the Covid-19 impact is not completely subsidized and there are thousands of cases reported of Covid-19 daily with a few hundred of mortalities. Since mortalities have a direct correlation with term insurance, the incessant claim experience for the life insurance companies is worsening the scenario for them; leading to the constant increase in the premium prices. Prior to this, the term insurance segment has witnessed a price increase twice already. The first steep price surge of 20%-25% was announced in June 2020 and then, this year in March, a hike of 4%-5% was reported in term insurance prices.

Alongside the prices, new customers can face challenges due to the strict underwriting that life insurance companies are imposing to minimize the losses by deeply scrutinizing the new applicants on different parameters- majorly health and finances as they are two significant factors casting direct impact on the term insurance plans.

Certain companies are planning to put caps on the age factor and income slabs. For instance, term insurance plans are preferably given to people lesser than the age of 45 years as they are considered healthy and come with lesser or marginal health conditions. And having fixed earning of more than Rs 5 lakh per annum for a salaried applicant and more than Rs 7 lakh per annum for a non-salaried person with minimum mandatory graduate qualification.

In order to confirm the health and fixed income stated by the applicant, the insurance companies can also ask the applicant to submit their proofs such as health check up reports and bank statements to validate the statement made by the applicant.

In case, an applicant is 44 years old currently and about to turn 45 years of age in the next few months. Or if a person is healthy today and unfortunately catches any illness in the coming months, then in both cases, it will become challenging for the applicant to obtain a desired term insurance plan.

Therefore, to avoid any unlikely scenario where you have to pay additional premium or face any rejection in the backdrop of income or health conditions, it is a wise option to purchase a term insurance at the earliest possible to ensure the safety of your family and loved ones.

(The author is Founder & CEO, PolicyX.com; views expressed are personal)