Kotak Life Insurance on Thursday announced the reduction in the cost of its normal term plan by 34 per cent and by 18 per cent on its preferred term plan. As a result, a sum assured of Rs 10 lakh for 25 years for a 30-year-old person would now cost only Rs 3,180, down from Rs 4,607 that it cost earlier.
Last week, insurance regulator Insurance Regulatory and Development Authority (IRDA) had lowered solvency margin requirement (the capital needed to carry out business) for insurance companies. As a result, prices of term plans — where a person gets the highest cover for the lowest price —are expected to fall.
“We are passing the full benefits of the reduced solvency margin requirement to the customer,” said Pankaj Desai, executive director, Kotak Life Insurance. But is not only the solvency margin requirement that has led to the fall in premium. “We have seen that the mortality rate is much better than what we had predicted and so we are passing that benefit as well,” said Desai.
While Kotak has been the first to take the initiative, others are expected to follow suit in the pure protection space. “Term is an area that we will focus more on, “ said Rajesh Relan, managing director, Metlife Insurance.
“The effect of reduction in solvency requirement will eventually lead to the reduction of the pricing of the term product and most of the companies will bring down with time,” said Relan
However, some feel that the impact is determined by the mortality rate and solvency margin has a little impact on the pricing of the product. “When the capital requirement falls, the actual weighted average impact on the overall cost is not very much,” said P Nandgopal, CEO, Reliance Life Insurance.
Meanwhile, those wanting to buy a pure protection plan from insurers should wait as rates fall across the board and then choose the lowest-cost plan.