Term policies may get 30% cheaper
Insurers can now pass over a portion of profit margin to consumers in the form of reduced premiums. Keep good health | In Pics: News, happenings and trends
By Debjoy Sengupta, TNN |
KOLKATA: Term assurance policies are likely to get cheaper by a maximum of 30% following Insurance Regulatory & Development Authority���s (IRDA) move to reduce the solvency margin requirement for such covers.
Under a term assurance plan, the sum assured is payable in case of death of the life assured during the term of the contract. One can choose the lumpsum that would replace the income loss to one���s family, in the event of one���s death. Since this is a pure risk cover plan, no benefits are payable on survival at the end of the term of the policy.
Solvency margin, on the other hand, is a statutory sum of money that needs to be set aside to honour claims.
���IRDA���s recent move will reduce additional capital requirements of insurers for writing these policies. According to insurance laws, a certain sum of money needs to be kept aside for honouring claims.
Earlier, if a company had to set aside Rs 100 for writing a term policy, he would now be required to set aside Rs 35, which means that the insurer will be able to write at least two policies with the same solvency margin now. It will also increase the profit margin of insurers with respect to these policies.
Under a term assurance plan, the sum assured is payable in case of death of the life assured during the term of the contract. One can choose the lumpsum that would replace the income loss to one���s family, in the event of one���s death. Since this is a pure risk cover plan, no benefits are payable on survival at the end of the term of the policy.
Solvency margin, on the other hand, is a statutory sum of money that needs to be set aside to honour claims.
���IRDA���s recent move will reduce additional capital requirements of insurers for writing these policies. According to insurance laws, a certain sum of money needs to be kept aside for honouring claims.
Earlier, if a company had to set aside Rs 100 for writing a term policy, he would now be required to set aside Rs 35, which means that the insurer will be able to write at least two policies with the same solvency margin now. It will also increase the profit margin of insurers with respect to these policies.
| | | Also Read |
| | �� | |
| | �� | |
| | �� | |
| | �� |
Hence, insurers now have the option of passing over a portion of profit margin to consumers in the form of reduced premiums. Theoretically, premiums can decline by as much as 25-30% in cases where insurers decide to pass the entire rise in profit margin to clients,��� GLN Sarma, chief actuary, Bharti AXA Life, told ET.
���Additionally, it will also improve penetration of term covers. Customers will definitely benefit from this move as companies can reduce the price of these products as the capital requirements have been reduced,��� he said.
Interestingly, Life Insurance Corporation of India (LIC) has already decided to pass on the benefit of the reduction in premiums to its customers.
���We will soon be applying to IRDA for revising the premiums of these policies. Reduction in premiums for younger clients will be more and can be to the extent of 10% while for the older population, it may be about 2%,��� GN Agarwal, chief actuary, LIC told ET.
For LIC, term plans account for about 4% of the total portfolio in terms of sum assured. For the industry, it would also be the same.
Download
The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.
The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.
Download
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
ADVERTISEMENT
