Term insurance premiums are going to increase by over 25-30% effective 1 April 2021-22 was the headline in Economic Times last week.
When you are already constrained for inflows and you are trying to keep yourself afloat, this news will definitely bother you.
My next immediate question was, "Will I be affected by this premium increase?"
"By how much will it increase?"
While I know that the reason for increase is due to COVID and the claims that were made during the last year, I was still worried about its impact on my finances.
I decided to dig a little deeper to find out and here is what I found:
If you have already bought the term insurance policy, the premium amount that you pay is fixed based on age, life cover amount, policy term and is calculated at the time of purchase. It remains fixed throughout the term of the policy.
I also checked this up on my insurer's website.
It gives me a temporary relief as my policy premium is not going to change. Then, who will be affected by this move.
You will be affected by this increase:
- If you are planning to take a term insurance newly in FY 2021-22, then a new policy may cost you more than what it costs last year.
- If you have recently recovered from COVID-19.
- If you are self-employed without formal income and tax proofs.
- If you smoke, and/or have co-morbidities.
- If you are working in the informal sector.
Now, let us ask an even more fundamental question of "Who needs to buy term insurance?"
Before we answer that, let us find out what is term insurance?
When you buy term insurance, you transfer the risk of loss of life to the insurance company.
Simply put, the insurance company will compensate your family if something were to happen to you. i.e. if you die, your family gets the sum assured that supports them financially when you are no longer there.
Everyone does not need term insurance.
Here is a checklist to find out if you need term insurance:
Check if you have answered "yes" to most of the questions numbered - 1,2,4,6,7 and 8.
Only then you need term insurance.
Don't buy one if you don't need it. You may use this checklist whenever your life situations changes for eg: you get married, you have kids, you buy a house on EMI, etc.
If you start any kind of financial planning, there are certain things that are considered to be a MUST HAVE and Term Insurance is one of them.
If you are asked to buy a term insurance by anyone without understanding your situation, it might be a good practice to ask the right questions and be aware.
berupeewise is a Financial Literacy school and we aim to bring in more such information available to you regularly.
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