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The Era Of Cheap And Easy Term Insurance Plans May Be Over

Life insurers are expected to increase premiums for term plans as claims spiked during the Covid-19 pandemic.

Reinsurers are becoming stricter about underwriting and the documentation required from customers, said Vighnesh Shahane, managing director and chief executive of Ageas Federal Life Insurance. “It will not be so easy or cheap to get a term product in India.”

The quantum of the hike, he said, will vary depending on the insurer, the reinsurer, and the volume of business between the two.

The revenue and profit of listed life insurers tumbled in the quarter ended June as they set aside more provisions against anticipated claims from the deadlier second Covid-19 wave. ICICI Prudential Life Insurance Co. saw the biggest sequential decline in new business premium at 50%, followed by SBI Life Insurance Co. and HDFC Life Insurance Co.’s 46% and 43% fall, respectively.

The companies have yet to report their earnings for the quarter ended September.

Term plans are likely to turn costlier because of three mains reasons:

Risks Of Higher Penetration

Since the original target group for term or protection products was the affluent category with better medical facilities, a lower risk was associated with a lower premium, according to Prithvish Uppal, the analyst at IDBI Capital Ltd. But as penetration for protection products rose, lower-income groups susceptible to higher risk merit higher premium, he said.

Cheaper Than Developed Countries

While India has a lower life expectancy, pricing has been on a par with the developed nations where people live longer on an average, according to Uppal. Annual premiums in Hong Kong, with a life expectancy of 84 years, are around Rs 12,000, about the same in India where the mortality age is 69 years, he said.

Covid-Induced Expenditure

An upsurge in claims due to the pandemic, especially the second wave, prompted reinsurers to hike rates, according to Mohit Mangal, the analyst at Anand Rathi Financial Services Ltd. “In Q1 FY22, HDFC Life’s gross claims were Rs 1,600 crore and net claims were Rs 960 crore,” Mangal said. “Thus, the reinsurers had to bear the burden of Rs 640 crore.”

Premiums declined in the 10 years through 2019. But just prior to the pandemic, reinsurers—companies that provide financial protection to insurance firms—raised prices ranging between 15% and 40%, according to Uppal.

ICICI Prudential Life Insurance passed on the entire hike to customers in July 2020, Mangal said. Others didn’t.

“HDFC Life and SBI Life chose to retain some portion of this hike on their books while others, in a bid to expand their protection business, absorbed the entire hike,” Uppal said.

HDFC Life, SBI Life, and ICICI Prudential Life refused to respond to queries from BloombergQuint citing the silent period ahead of their earnings.

Shahane said insurers may take a decision “depending on their expectations and predictions of the future and how the pandemic is likely to play out”.

According to Uppal, the companies will pass on the increase in reinsurance costs based on their historic mortality experience and follow a cautious underwriting approach to avoid pandemic-related uncertainties.

“ICICI Prudential is most likely to continue passing on the entire hike to customers due to its management policy,” he said. “[But] HDFC Life and SBI Life may also follow suit, unlike in the past.”

Unlikely Gainer: LIC

As term plans of private insurers turn costlier, Uppal expects one company to gain: state-run Life Insurance Corp.

The hikes will narrow the pricing gap with LIC. Currently, private firms charge around Rs 10,000 to Rs 15,000 a year for a plan worth Rs 1 crore, while LIC which sells similar policies at Rs 20,000-25,000, Uppal said.

“LIC is most likely to benefit from the price hike as brand recognition will enable it to gain market share in the protection business.”

Uppal also expects volume growth in the third quarter before the reinsurers increase prices by December-end.

Source: Bloomberg

5 Key financial lessons to learn from Dussehra

Dussehra is celebrated to honor the victory of good over evil with much pomp and fervor. While Dussehra is a time when eternal hope rises in the good that exists in humanity, 

it also brings with itself some important lessons you can implement to your financial plans to have a better grip on your finances and plan for a better future. Read 5 Key financial lessons to learn from Dussehra here;

Destroy the evils on your wealth creation journey

The festival of Dussehra marks the victory of good over evil. During the Lanka war, Lord Rama and his army encountered various hardships to attain victory. Looking at the festival from a finance and investment perspective; the festival offers the vital lesson of ridding away all the causes that pose as a hurdle on our financial planning and wealth creation journey. Surmounting credit card debts, reckless expenditure, timing the market, booking losses amongst many other hurdles are the real enemies on our wealth creation journey.

Live a disciplined life

The advocacy of ‘Dharma’ or righteousness by Lord Rama emphasized the significance of being upright, responsible, and disciplined in life. While in exile or during the Lanka war, Lord Rama did not deter living a life of frugality. You too can learn to live in less than what you earn. By saving wisely, spending cautiously, and investing smartly; you can apply financial discipline to cater to your current and future needs as well as your family’s needs. One way of inculcating and nurturing financial discipline within you is by firmly following a financial plan, avoiding binge-spending at all costs, and investing in a regular pattern; possibly in Mutual Funds via Systematic Investment Plan (SIP).

Lead a life of patience and perseverance

When Lord Rama along with Lakshmana and Sita were exiled to the woods for 14 years and was asked to live a simple life as opposed to the luxurious lifestyle of the royal palace; he accepted his fate and maintained composure. When Ravana abducted Sita and the Lanka war broke out; Lord Rama fought the war with patience and perseverance and never thought of giving up or looking for shortcuts. These two incidents in the Ramayana signify the importance of being patient and perseverant in the hardest of times. In your life too, you may face financial hardships or you may find it difficult to avoid unnecessary expenditure. As an investor, you may get impatient while watching your money grow or market ups and downs can test your patience to its extreme forcing you to quit investing any further and derail you from achieving your financial goals. Irrespective of the above-mentioned incidents; you must be patient and perseverant at all times.

Protecting your finances

The festival of Dussehra symbolizes the faith in defeating all forms of evil to protect humanity on Earth. By protecting or securing your finances, the message is to create a financially sound future and shun all evils that affect your financial wellbeing.  You could protect your hard-earned money from going to waste by putting it to good use; in the form of investments or insurance plans. Also, maintaining a contingency fund that helps battle your emergency needs can prevent you from using up your savings or taking loans.

Cheers to new beginnings

The Lanka war of 14 days marked the defeat of evil and paved the way to newer paths. Upon returning to Ayodhya with Lakshamana and Sita, Lord Rama was crowned as the King of Ayodhya, and Vibhishana was crowned as the new king of Lanka. The events during the Lanka war and the subsequent victory of Lord Rama brought a new lease of life by starting afresh. Taking a cue from this; it’s never too late to tread on a path of financial freedom. You can start by chalking out a financial plan that suits you the best. If you wish to achieve your financial goals, you can always invest in a Mutual Fund scheme that is aligned with your financial goals and matches your risk appetite.

Source: Mtilal Oswal

How to Invest at A MARKET HIGH

It is that point of the year…the stock market is at its all-time high. All this while you waited for this opportune moment to begin investing. But wait! Don’t lose yourself in the exuberance all around. You never know where the market is heading the next moment.


The questions remain unanswered:

  • * Is the market going to rise further or is it going to fall?
  • * Should you be a skeptic and wait for a correction or cheer up and invest right away?

Waiting for a market correction to start investing would result in a loss of opportunity. This is exactly why you should get going immediately. If you keep waiting for a market correction, you will stay stuck. This is why you should invest, even at a market high, as the markets are only going to go higher. Sure, there will be a few hiccups on the way, but the general market trajectory is going to be largely upward-looking.

In case you are a novice investor, this time demands higher levels of composure from your end. Instead of placing impulsive bets and repenting later, sit down and formulate an investment strategy. 

Review the entire portfolio

When you initially constructed a portfolio at the beginning of the cycle, markets must have been quite different. Now that so much time has elapsed in between, chances are the valuations might have changed. 

The reasons which made you buy that bunch of stocks might no longer be existing. The market leaders might have changed ranks. In such a situation, sticking to laggards might end you in losses. So, use this time to review your entire portfolio. Weed out the stocks which don’t seem valuable anymore.

Re-balance the portfolio

You need to know that market volatility affects your portfolio’s asset allocation. Your original asset allocation might have been in a ratio of say 50:50 (equity: debt). But the steadily rising markets might have skewed the original allocations. 

It means that now the ratio must have become say 70:30 (equity: debt). On one hand, it may seem like a lucrative opportunity to accumulate more wealth. But if it is not in line with your risk preferences, you may land in trouble.

You got it right! Your portfolio has now become riskier than you actually can digest. If you don’t want to carry a riskier portfolio, then it is better to re-balance it. Re-balancing involves bringing the skewed allocation to its original asset allocation of say 50:50 in this case.

Diversify your portfolio

Your portfolio might be composed only of small-cap or mid-cap stocks. In a rising market, a concentrated portfolio might increase your chances of losing money. When markets are high, you need to diversify. In diversification, you need to include stocks of different market capitalization. You can invest in large-cap stocks which tend to be stable during such volatility.  

Start SIP in mutual funds

For first-time investors,  trading in the stock market can be tricky. If that is not your ball game, then go for equity mutual funds. Equity mutual funds give a similar kind of investment experience; although with greater diversification and professional fund management. 

You may think of starting a Systematic Investment Plan (SIP) in equity funds. In this, you will be consistently placing smaller bets. Over a period, it will give you the advantage of rupee-cost averaging.  

Never invest in something you don’t understand

One mistake you shouldn’t commit is investing in a complicated financial product. Market highs are usually accompanied by fund houses launching sophisticated offerings. You might come across a lot of New Fund Offer (NFO) during this time. 

These offerings might promise sky-high returns. However, you shouldn’t get enticed by the lucre, especially when the product offering is not transparent. Ensure that you understand what you are getting into before investing. 

Moreover, invest in a financial product that has an investment history of 5 to 10 years. Even if you want to take the risk, don’t invest a lump sum in a single stock or fund.

Goal-based investing

Mapping specific mutual funds to specific goals will help you not only choose mutual funds correctly but also keep track of them in a better way. You can choose mutual funds depending upon the term and the risk profile of the goal.

All said and done, market highs and market lows will come and go. The volatility shouldn’t bother long-term investors. You should keep an eye on your goals and invest systematically. 

Source: ClearTax