Should you repurchase a new Term Plan ?

Did you buy a term plan few years back? Many of you did. Aegon Religare was the first company tolaunch its term plan in India and from that point, lots of companies have launched their online term plans. Recently I got a comment from one of the reader who had bought his term plan from Aegon religare long back and they increased his Sum Assured by 25% because they have reduced the premiums recently

I had taken AR iterm couple of years back. today i received an email saying my sum assured is increased by 25% of original to keep it at part with the new iterm rates. This is a good experience from AR – Says Muthu Krishnan

Term Insurance premium is constantly coming down from many months and new companies entering this online term plan business are making sure they keep down the premiums due to competition. The new entrant in this field is Bharti Axa eProtect plan which has lowest premiums compared for 25-30 yrs group at the moment.

“Term life insurance premium depends on the mortality experienced by a life insurance company,” says Suresh Agrawal, executive vice-president, Kotak Mahindra Old Mutual Life Insurance. “As the mortality experience of the insurer improves over a long period of time, it is passed on to the customers in the form of lower life premium for the new customers.”

However the point we are raising today is, what about those people who had already taken term plan 2-3 yrs back? It can be online or offline doesn’t matter, the point is that they are paying a very high premium compared to a new policy which they can buy.

For instance, someone who had bought a policy with sum assured of 50 lacs before 1-2 yrs must be paying around 7,000-8,000 premium, however if they dump their old policy and take up a new policy they will get it much cheaper despite their higher age now. So the good idea would be to look back at your term plan and see how much are you paying and how much is latest premium in the market for the same company or some new company?

Important point before you change your Policy

1. Older the Policy, better it is

A very important point worth noting here is that in Life Insurance any claim which comes within 2 yr is considered as “early claim” and it’s scrutinized in detail, very detail. However a policy which is more than 2 yrs old does not come under “early claim”. So, if you have already completed 2 yrs or close to completing 2 yrs, this is one thing you will lose out when you take a new policy. However its just a point you should know, it’s not something which should stop you.

2. Look at your health changes

You need to see how your health has changed after you had taken the term plan, if you have developed any illness in between then for you the premium will increase (loading) after the medical tests. So even if the premium might show cheaper on the calculator, after you do the medical, the new premiums can actually be much higher than your old premium. So better look at that aspect.

3. Take a new plan and then close the old one

The best way of moving ahead with new policy and dumping your old one is to first apply for the new term plan and once you get it, then close the old one. Do not just close the old one and then take a new one because in case there is some issue in getting a new term plan or if you are unsatisfied in between, it will be a bad situation to be in.

This topics brings another question in mind – Should there be Life Insurance Portability in Future ? Do you think its something desired or not ?