While thinking of switching policy one must look at new premium, health condition
A sharp 30 per cent fall in term insurance premium, which provides only risk cover and no return on maturity, has been witnessed in the last two years in the face of reduction in solvency margin by insurance regulator to sell term plans and also due to rising competition.
But those who bought term policies at higher rate continue to pay higher premium. Premium in term plans is fixed for the entire tenure of policy and these policies do not have any renewal or maturity benefits.
So, should you renew your existing policies or discontinue old one in favour of new one?
Term or pure insurance products do not have any investment component and do not have any maturity benefits. If the policy-holder outlives the tenure of policy he doesn't get any return on premium.
For example, earlier on a sum assured of Rs 50,00,000 for tenure of 25 years, a 40year-old male would have had to pay annual premium of Rs 32,500. Now, for Rs 50,00,000 sum assured a 40year-old male has to pay only Rs 20,000.
Experts say that you can switch to new policies if age is on your side. But as you grow old, the mortality charges rise. When you think of switching to a new policy you must look at the new premium you would be required to pay. You must also look at your health condition. Any sign of deteriorating health would attract extra loading on the premiums.
Often insurers make customers undergo medical examination before issuing a policy. Mortality table indicates the rates which are to be charged for people of different age groups based on the average probability of a person in that age group expiring.
If a policyholder is covered under a term insurance policy he will be better off continuing his existing policy in case his health status has deteriorated,.
Instead of discontinuing old policy, one can buy new plans at cheaper premium and enhance total life coverage. To enjoy low premium on life cover, one should buy insurance at younger age.
