Looking to buy an insurance policy? You would’ve heard the term, “insurance premium”. This is the amount you pay for the coverage the policy gives you.
But how does the insurer define life insurance premium? What are the factors that affect premium rates? Is there a way of lowering your insurance premium? This article answers all your questions.
What is an Insurance Premium?
To understand premium insurance definition regarding life insurance, it is simply a fixed amount you pay towards the sum assured or life cover, i.e., the money paid out to your dependants in case something unfortunate happens to you during the policy term.
Life insurance premium can be paid in monthly, quarterly, half-yearly, or yearly instalments, or as a one-time payment, depending on your feasibility. But it is extremely important that you do not miss a single payment as this could affect the policy’s validity.
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.
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 dependants 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.
IndiaFirst Life Plan offers a life cover between ₹1 lakh and ₹50 crore, with the benefit of choosing your own term from 5 years to 40 years, at an extremely reasonable price.
IndiaFirst Life Guaranteed Protection Plus Plan covers you up to 99 years of age by paying premiums for only a short duration.
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.
Stay healthy: As we read earlier in the article, your health is the biggest indicator of your premium cost.
Buy online Getting an insurance policy online gets you a lower premium as you buy directly from the insurance company, cutting out agents and middlemen costs.
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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