MUMBAI: The country's largest insurer, Life Insurance Corporation of India, plansto reduceitsterminsurance rates. Term insurance policies refer to those covers where the insurance company makes a payout only upon the death of the insured.
"We are in the process of reviewing our rates and will do so after this financial year," said D K Mehrotra, LIC chairman. He added that although LIC's rates for term insurance are higher than that of private insurers, the corporation has a much better track record in claim settlement. According to Mehrotra, there is a big increase in the awareness for life insurance protection. Apart from competition, the awareness has been generated because middle-class buyers with loans want to ensure that their liabilities aretaken care of.
At present, a 30-year-old who purchases a 25-year LIC term cover pays Rs 14,600 annually for a cover of Rs 50 lakh. This is much higher than the premium chargedby private life insurance companies which are in some cases up to 40% cheaper. Several companies offer much cheaper cover online. However, LIC officials say that the corporation has a better track record in claim settlements. They also point out that term insurance rates cannot be compared directly because in high value policies the actual premium would depend on medical underwriting and the parameters for "normal" rates vary across insurers.
The rates for term insurance are revised periodically after reviewing changes in lifeexpectancy of theinsured population. As life expectancy has been rising because of medical advances, the cost of cover has been constantly declining and are in some cases a fourth of what they were at the time of opening up of the life industry in 2000. While rates are expected to keep declining until life expectancy rises to 85-the highest level of life expectancy-prospective buyers cannot wait. This isbecause prices risewiththe age of entry.
According to the IRDA's annual report, the claim settlement ratio of LIC was better than thatof the privatelife insurers. Settlement ratio of LIC increased to 97.03% in 2010-11 ascomparedto 89.04% for private life insurers. Similarly, LIC had a low rejection rate of 1% as compared to 8.90% for private insurers. In absolute terms, private life companies rejected 9,966 claims, while LIC had rejected7,384claimsdespitehaving a much larger share of business than private insurers. A senior LIC official said that claims are typically rejected if any material fact which would have impacted the insurer's decision on pricing would have been withheld or mis-represented. In the case of LIC such claims are settled on an ex-gratia basis if the misrepresentation is not related to the cause of death.
"We are in the process of reviewing our rates and will do so after this financial year," said D K Mehrotra, LIC chairman. He added that although LIC's rates for term insurance are higher than that of private insurers, the corporation has a much better track record in claim settlement. According to Mehrotra, there is a big increase in the awareness for life insurance protection. Apart from competition, the awareness has been generated because middle-class buyers with loans want to ensure that their liabilities aretaken care of.
At present, a 30-year-old who purchases a 25-year LIC term cover pays Rs 14,600 annually for a cover of Rs 50 lakh. This is much higher than the premium chargedby private life insurance companies which are in some cases up to 40% cheaper. Several companies offer much cheaper cover online. However, LIC officials say that the corporation has a better track record in claim settlements. They also point out that term insurance rates cannot be compared directly because in high value policies the actual premium would depend on medical underwriting and the parameters for "normal" rates vary across insurers.
The rates for term insurance are revised periodically after reviewing changes in lifeexpectancy of theinsured population. As life expectancy has been rising because of medical advances, the cost of cover has been constantly declining and are in some cases a fourth of what they were at the time of opening up of the life industry in 2000. While rates are expected to keep declining until life expectancy rises to 85-the highest level of life expectancy-prospective buyers cannot wait. This isbecause prices risewiththe age of entry.
According to the IRDA's annual report, the claim settlement ratio of LIC was better than thatof the privatelife insurers. Settlement ratio of LIC increased to 97.03% in 2010-11 ascomparedto 89.04% for private life insurers. Similarly, LIC had a low rejection rate of 1% as compared to 8.90% for private insurers. In absolute terms, private life companies rejected 9,966 claims, while LIC had rejected7,384claimsdespitehaving a much larger share of business than private insurers. A senior LIC official said that claims are typically rejected if any material fact which would have impacted the insurer's decision on pricing would have been withheld or mis-represented. In the case of LIC such claims are settled on an ex-gratia basis if the misrepresentation is not related to the cause of death.
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