Looking to buy an insurance policy? You would’ve heard the term, “insurance premium”.
Premium happens to be an important component of any policy, whether it be life insurance or general policies. If we were to understand a policy as a contract between the policyholder and the insurance provider, it entails that both parties bring something to the table against which they get something in return. The insurer offers you the coverage as defined in the policy you choose, against which the policyholder is required to pay the premium. Hence, premium can be understood as the amount that buys you the policy coverage.
Life insurance is understood to be a critical component of your financial portfolio. Understanding premiums in life insurance is important if you want to ensure better financial planning and security. Let’s take a closer look at insurance premium and what it means for your life insurance policy.
What is an Insurance Premium?
In the context of life insurance, insurance premium is simply a fixed amount you pay towards the sum assured or life cover, i.e., the money paid out to your dependents in case something unfortunate happens to you during the policy term.
The type of life insurance premium payment term as well as the frequency can be chosen by the policyholder as per the options available. The premium payment term refers to the duration for which you will be paying the premium. A common assumption may be that the term of premium payment is the same as the duration of your coverage. However, you can choose to have a limited premium payment term or a single premium payment as well.
On the other hand, life insurance premium payment frequency refers to how often are you required to pay your regular premiums. Some common options include - monthly, quarterly, and annually. Depending on the choices made, premium amount can vary. A life insurance calculator can help you get these estimates based on various factors, so you may plan better. The type of life insurance premium payment term and frequency are only two of the many factors that influence the cost.
You are required to pay the premiums for your policy on time. There is usually a grace period offered, but it is ideal to not delay the payments. Failure to pay premiums can result in policy lapse.
Types of Insurance Premiums
The two most important insurance plans every individual must invest in are life insurance and health insurance.
Life Insurance Premium:
Your life insurance premium depends upon the age at which you purchase the policy, along with your current health, professional, and lifestyle parameters as defined by the insurer.
Health Insurance Premium:
Your health is a crucial indicator of your health insurance premium and considers your lifestyle and habits, pre-existing ailments or conditions, your family’s medical history, occupation, and other factors.
Factors that Affect Premium Rates
Insurers define insurance premium basis these factors:
1. Age:
If you are young, you are healthier and hence, there is lesser chance of you making a claim. The premium costs much lower, which is why, buying a life insurance policy in your 20s is not only affordable, but is also a smart move.
2. Lifestyle:
Smokers, people who consume alcohol, adventure sports enthusiasts are slotted on the higher end of the premium costs scale and charged more, as their lifestyle choices could lead to complications in the future.
3. Risky professions:
Similarly, if you are a firefighter, diver, law enforcement officer, construction worker or any other high-risk profession, be prepared to pay a higher premium for the same reasons stated in point 3.
4. Medical history:
Have a medical history of diabetes, cancer or any hereditary ailment? This predisposes you to inherit the same and red flags you as a risk. Expect a higher premium rate.
5. Sum Assured Amount:
More coverage means more protection. But it also means a higher premium.
6. Premium Payment Frequency & Term:
For how long you will be the paying the premium and how regularly, may also influence the amount you pay.
7. Coverage Duration:
This is another factor that can increase or decrease your premium amount, in correlation with other factors.
A life insurance calculator usually considers most of these factors when providing estimates. However, estimates do not reflect the exact figures that you may have to pay. Consult an insurance expert so you may make informed choices.
Importance of Understanding Your Premium
A premium is not just an amount you pay. It is a lifelong commitment to protect your family’s financial security. Which is why, it is important you choose a coverage amount that you can afford to pay for. You could be making payments anywhere from 10 to 30 years so choose a premium payment that is affordable and sustainable.
The best way to choose a plan is by estimating your future goals, evaluating your current and expected liabilities, and number of dependents that include your spouse, children, and aging parents. Considering all these factors will help you budget appropriately and give you the best insurance value out of your premiums.
How to Calculate Your Insurance Premium?
Insurance companies offer life insurance premium calculators on their websites. You can use IndiaFirst Life’s Term Plan Calculator to determine the premium payable for the chosen insurance coverage by simply inputting the basic details.
Tips for Lowering Your Insurance Premium
Pay yearly:
Multiple premium payments attract extra charges to cover additional costs that the insurer has to pay. An annual premium payment negates this.
Start as young as possible:
You’ll have health on your side and hence, lower premiums as you’re less of a risk.
Policy tenure:
A long-term policy costs much less than a short-term one and gives you the benefit of building a bigger corpus with smaller premiums.
Riders:
Choose your riders wisely as they add to the cost. You can even purchase them later if you feel an imminent need as some plans allow you to add riders to an existing policy at a later stage.
Live a healthy lifestyle:
One of the important factors that play a role in determining your premium cost is your health. Focus on living better by eating well, getting ample physical activity, and regular check-ups as you age.
Buy online:
Getting an insurance policy online tends you get you a lower premium as you buy directly from the insurance company,.
A premium is more than a mere expense. It is a crucial financial asset that provides the essential protection your family requires. So do not rush into the first option basis an ad or recommendations from family and friends. Compare different types of policies to see which one best suit your needs. Seeking the guidance of a financial expert will help you find the most affordable plan with the most benefits.
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