If you're thinking about buying life insurance, one of the things you'll need to consider is the premium. In this article, we will take a closer look at life insurance premiums, including what they are, how they are calculated, how insurance companies use premiums, and how you can save on them. We will also answer some common questions about life insurance premiums. Let’s begin by understanding what life insurance premiums mean.
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Life insurance premiums in India are based on many factors. The process includes assessing the risk of insuring an individual and obtaining the appropriate amount. Use the ACKO insurance calculator to determine your premiums and life insurance quotes. Check Here
Age of the policyholder is one of the most crucial factors. In most cases, younger individuals do not constitute high risks. Therefore, their premiums usually remain low.
This sum would be given to the nominees in case of the policyholder’s death. This implies, the higher the sum assured, the higher the premium.
The length of the policy coverage period is also a factor affecting the premium. Premiums could be higher on longer-term policies.
A major role is played by the health condition of the person. Insurance companies often ask for a medical examination as a way of understanding the overall health and any pre-existing conditions. Poor health may lead to higher premiums.
Some lifestyle choices such as smoking or consuming too much alcohol can increase the risk for the insurer. This consequently leads to higher premium.
The premium depends on the nature of one’s job. This can lead to higher premiums for riskier occupations.
Sometimes, gender can also affect the premium. This might have reflected the historical fact that women have traditionally been regarded as low risk, which might have contributed to slightly lower premiums.
The policy can also incorporate additional features, or riders, such as accidental death benefit or critical illness, which offer even further protection. However, additional riders can increase your premiums.As per the IRDAI, you can purchase an Accidental Death Benefit Rider with coverage up to three times (3x) the base sum assured of your life insurance policy.
The amount of premium can also depend on how frequently the premiums are paid, whether they are monthly, quarterly, annually, etc.
Some insurance companies give discounts or bonuses. For example policyholder’s loyalty, good health, or other criteria. Such discounts can help reduce the overall premium.
Note that each insurance company might have special criteria for calculating premiums. Therefore, comparing quotes from multiple insurers can help you get the most affordable and suitable coverage. Make sure you read and understand the policy documents as you purchase insurance and consult an insurance expert if necessary.
If you fail to keep up with your life insurance payments, your policy could lapse, which is not in your best interest as a policyholder. So, let's understand what could happen if you miss a payment.
Failure to pay the life insurance premiums on time could also mean letting your policy lapse. Lapsed policy means you are no longer covered, and therefore your family is unprotected.
Late payments attract penalties in most insurance companies in India. However, a window period of up to 30 days is provided to make a delayed payment without any charges. This is the time you should use to ensure you renew your policy to ensure it remains valid.
When your policy expires, you lose the benefits. This also includes the death benefit, maturity benefit, and any riders or additional coverage that you might have selected.
If you happen to miss the grace period, don't worry! You can still bring your policy back to life, but there's a catch. You'll need to catch up on the overdue premiums, and on top of that, throw in some extra cash for interest and penalties. There might be a bit of a hurdle – the insurance company might want to give you a once-over with a medical examination before they give the green light to reinstate your policy.
Certain life insurance policies have a savings or investment element. You may lose the opportunity of building wealth through these components if your policy lapses.
In some instances, policyholders may find it difficult to reinstate the lapsed policy and they opt to surrender it. A policy surrender is voluntarily terminating the policy and the policyholder may be entitled to a surrender value, which is normally lower than the total premiums paid.
It is noteworthy that a terminated policy might lead to a lower credit score. Insurers may also send notices to credit bureaus, which could affect your ability of creditworthiness.
Let’s deep dive into how insurance companies use premiums.
Insurance as a big collective hug to your money. You are a member of the pool with the other policyholders and paying your premium. This constitutes a safety net for every member of the society who experiences any unexpected events like the accidents and illnesses.
When an unfortunate event occurs and you need to claim, the insurance company collects the premiums and uses them to pay for claims. The essence of insurance, in particular, is to support your family financially when something unfortunate happens, like death.
There are numerous costs that come with running an insurance company, such as wages, rent, and technology. Premiums help to defray these operational costs so that the company operates smoothly and serves its policyholders in an efficient manner.
Insurance companies use these funds to buy stocks and bonds. The yields from these investments offset the claim costs and stabilise the premium rates.
New insurance products are also influenced by premiums. The companies channel the money collected into research and create policies which are able to meet the changing needs of the customer.
Reserve funds hold a small fraction of a premium. These funds act as a cushion towards times when there is a high number of claims made or sudden financial obstacles. It also acts as insurance for the ability of the company to fulfil its obligations to the policy holders.
Insurance industry is regulated and companies must meet some financial standards. The regulatory requirements for the insurance sector are also met with the provision of premiums thus, stabilising and making the insurance sector reliable.
In the end it boils down to the fact that premiums are what keeps the engine of insurance running. They enable companies to honour their undertakings, manage operations, invest intelligently and innovate to adapt to varying policyholder’s needs. This is a financial strategy that balances between offering affordable coverage, yet retains the financial health of the Indian insurance industry.
Term insurance is a simple life insurance policy that offers cover for a fixed term, commonly known as the policy term.
Benefits: It provides a comprehensive death benefit at low premiums, protecting the family from financial distress. Check out ACKO Life Flexi Term Plan, a unique plan offering flexible coverage per your changing lifestyle!
When the premiums are paid, whole life insurance covers the insured for the entire life.
Benefits: This is not a mere policy covering a person's life but serves as a long-term cash value investment accumulation.
This is a type of plan where life insurance coverage is combined with savings. A lump sum is paid to the policyholder if he/she outlives the policy term.
Benefits: It has a maturity benefit and, hence, a proper option for people seeking both protection and savings.
Money-back policies offer liquidity periodically during the policy term.
Benefits: This plan is meant for people who need to have returns at regular intervals but maintain life coverage throughout the policy duration.
ULIPs combine insurance and investments. The premium is partially invested in market-linked funds that can accrue some returns.
Benefits: This offers the double benefits of life insurance and an avenue for wealth creation through market-linked investments.
Buying life insurance offers tax benefits granted by the Indian government.
Under Section 10(10D), the maturity benefit is also tax-free if:
When selecting a life insurance plan in India, focus on finding the right coverage amount, policy duration, and the best life insurance premium that suits your needs. Here are some easy yet powerful ways to reduce your premium.
The younger you are, the lower your life insurance is. Insurance companies usually offer lower rates to young people because they are less risky. Therefore, don’t postpone life insurance, buy yours today.
Compare policies with different insurers. This enables you to choose the best coverage for you and at the same time, enables you to get the cheapest one.
Term insurance is typically cheaper than most types of life insurance coverage. Pure cover with no investment, a cheap option for those wishing to provide financial security to their loved ones.
Your life insurance premium depends directly on your health. Lead a healthy lifestyle, eat well, and exercise so as to qualify for low premiums. As a rule, insurance companies appreciate people who take good care of themselves.
While they cover you, riders are also expensive and increase your premium. Evaluate your requirements and try to leave out riders that you do not need. By doing this, it prevents you from running high costs on your premiums.
When you go through different stages of life, you will have different financial responsibilities and needs. Keep checking your life insurance coverage to make sure that it still meets the demands of your current life. By adjusting your coverage, you avoid paying for unneeded benefits.
Insurance companies offer discounts for policyholders, who make yearly payment instead of monthly payment. It may seem convenient to pay for a year instead of monthly, but the savings may be substantial in the long term.
You may need to buy several insurance policies from the same insurer if you require them. For example, some companies offer discounts for customers who purchase more than one policy like life and health insurance in a bundle.
In life insurance, your credit score can affect the premium you pay. Timely payment of bills and proper financial management can increase your credit score that could result in lower insurance premiums.
Quitting smoking is a smart move for your health and wallet. It increases chances of various health issues, and insurance companies often charge higher premiums for smokers. By kicking the habit, you not only improve your well-being but also save money by reducing your life insurance premiums. It's a win-win for both your health and your pocket.
Here are some common questions about life insurance premiums.
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Reviewed by Vaibhav Kumar Kaushik 
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