Explained: Term insurance premium is 15% cheaper for women than men

Women may be eligible for lower premiums than men due to their longer life expectancy and lower risk of certain health conditions.

Life insurance premiums for a woman opting for a term plan are on average 15 per cent cheaper when compared to the premiums paid by men because women have a higher life expectancy than men, and  lower risk of certain health conditions. However, the actual cost of term insurance will depend on factors such as age, health, and the amount of coverage needed.

"The average life expectancy of Indian females surpasses that of their male counterparts by approximately 2.5%. Consequently, this leads to a favourable scenario for insurance companies, as the risk and likelihood of claims decrease with a longer lifespan. As a result, women can get term insurance at lower premiums than men of the same age. On average, term insurance tends to be approximately 15% more cost-effective for women than for men," said Rhishabh Garg, Head – Term Insurance, Policybazaar.com.

Imagine a situation where a man and woman who are of the same age, 40, and are buying the same life insurance plan. In this case, the life insurance premium will be higher for the man. This is because there is a high chance that the insurer will have to pay for the life insurance coverage at an early stage for the man as compared to the woman. 

 

Furthermore, working women have the opportunity to maximize tax savings under Section 80C, with deductions of up to Rs 1.5 lakh available.

Additionally, the death benefit paid to the beneficiaries is tax-free under Section 10(10D). 

Policybazaar’s recent pan-India research found a whopping 45% of homemakers are actively involved in the decision-making process with their husbands when purchasing Term Insurance for themselves.

Women with formal education are much more likely to make the purchase decision independently. Around  58% of women buying Term Insurance themselves were graduates or above.

Women in Western India ranked the highest in independent decision-making (36%) across tier-1 & 2 cities than the 27% of India's average.

Securing children’s future main reason behind purchase

While safeguarding the children’s future emerged as the the evident motivator for married women with children, 39% of women married without children also thought ahead and secured a term plan for this very reason.

Not just this, 16% of single women also planned ahead and bought a term plan to secure their potential children. However, in this category, 69% of women bought term insurance to take care of ageing parents.

Choice of high coverage when women are key decision-makers:

At least 44 per cent of women bought Rs 1 crore or above cover as primary decision makers and 23% as co-decision makers, as opposed to 13% of men purchasing this cover for their wives - both working and homemakers

In cases where the husband was the key decision maker, 76% of them invested in a Rs 20-50 lakh cover.

Over 50% of salaried Term Insurance buyers opted for Rs 1 crore cover, while the sum insured opted by 87% homemakers was between Rs 20-50 lakh.

How much cover do you really need? 

The amount of term insurance cover you need will depend on your individual circumstances and financial goals. It is recommended to have a term insurance cover that is at least 10 to 15  times of your annual income.

Policybazaar addresses this using an example - Miss Sharma has an annual income of Rs 10 lakh and a monthly expense of Rs 25,000 (i.e. INR 3 lacs annually). Additionally, she has an outstanding loan of Rs 30 lakh. Basis inflation of 8%, her expenses over the next 20 years would be Rs 1.2 crore, and an additional loan of Rs 30 lakh to cover. Hence, an ideal cover would be Rs 1.5 crore i.e. 15x of annual income.

Don't opt for ULIPs and traditional savings plan

Term insurance is a life insurance product, which offers financial coverage to the policyholder for a specific time period. In case of death of the insured individual during the policy term, the death benefit is paid by the company to the beneficiary. 

Point to note: Term plans provide pure life cover. This means there is no savings / profits component. They are basic plans which make life insurance more affordable vis-à-vis other options.

When buying insurance policies,  financial experts are of the view that women should stay clear of products llike Ulips and tradional savings plans as such products try to solve two problems (insurance and investment) at once and fail at doing both optimally.
 

"Although ULIP’s have undergone a lot of structural reforms over the past 10-15 years, they are still not an ideal solution. Firstly, the insurance coverage associated with these plans is typically insignificant from a risk-protection standpoint because that is he way agents find it easier to sell them (otherwise the mortality costs that reduce the investment component become difficult to explain). In addition, ULIP funds typically underperform comparable mutual funds that invest into the same space. Finally, a host of charges such as fund management cost, switching cost, premium allocation charges, premium redirection charges etc eat into the corpus and erode it over time, never allowing it to realize its full potential. So, in the end, a ULIP neither serves as a great investment nor a solid insurance plan," said  Mayank Bhatnagar, Chief Operating Officer, FinEdge.
 

Savings plans are considererd worse than ULIP’s, because they are structurally incapable of providing inflation beating returns. 

"A large part of the first-year premiums of these plans is used to pay agent commissions. What is left over needs to be invested largely into government securities that only earn the risk-free rate of return, which is comparable to bank FD returns. As a result, these plans could not deliver more than 4-6% returns if they wanted to! To make matters worse, these plans are extremely opaque and their features are built to confuse investors. Their returns are disguised in the form of bonuses and only an IRR calculation on a spreadsheet would actually reveal what rate your money is growing at," said Bhatnagar.

They are also extremely illiquid, with few to no viable exit options. Even if exit options exist, they levy heavy penalties in the form of surrender charges.
 

Investment strategy
Bhatnagar believes one must get a simple term plan to cover your risks, and invest the remaining money in mutual funds, based on your financial goals.

"The primary purpose of insurance should be protection, and term insurance provides comprehensive coverage at a low cost, allowing you to allocate more of your funds towards investments. Moreover, separating your insurance and investments offers greater flexibility and control, enabling you to choose investment instruments that align with your financial goals and risk tolerance," said Amit Goel Co-Founder & Chief Global Strategist, Pace 360