Learn about the factors that influence your premium rates and how to choose the right coverage for your needs.
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Term insurance is a vital component of financial planning, offering peace of mind and financial security to policyholders and their families in the event of an untimely death. In India, various Term insurance policies are available, each with its own set of benefits and premiums. However, choosing the right policy can be overwhelming, as several factors can impact the premium payable. In this article, we will delve deeper into the concept of Term insurance premiums in India, exploring the key factors that affect the premium payable and more.
When you purchase a Term insurance policy, you're essentially paying a fee, known as a premium, to the insurance company. The premium is the money you regularly pay to keep the policy in force. In return for this premium, the insurance company agrees to pay a predetermined amount of money, known as the death benefit in insurance, to your designated beneficiary in the event of your death.
The premium you pay depends on several factors, such as your age, health, occupation, and lifestyle habits. The insurance company calculates your premium based on the risk they assume by insuring you. If you are considered a high-risk individual, you'll typically pay a higher premium than someone who is considered low-risk.
It's important to understand that Term insurance premiums can be structured differently. For example, Term Life Insurance policies typically have a fixed premium for a specified term. In contrast, Whole Life Insurance policies usually have a level premium that remains the same throughout the policy's duration.
In India, the cost of Term insurance premiums varies depending on the type of policy you choose, the sum assured, and other factors. By understanding the factors that impact the premium payable, you can make an informed decision about the type of policy that best fits your needs and budget.
The following are the key factors that affect the premium payable on a Term insurance policy in India.
The policyholder's age is a crucial factor affecting the premium payable on a Term insurance policy. The younger the policyholder, the lower the premium payable, and vice versa.
The sum assured is the amount that the insurance company pays out to the nominee in case of the policyholder's death. The higher the sum assured, the higher the premium payable.
The policy term in life insurance is the duration of the Term insurance policy. The longer the policy term, the higher the premium payable.
The policyholder's medical history is an important factor that affects the premium payable on a Term insurance policy. The premium payable may be higher if the policyholder has a pre-existing medical condition or a history of illnesses.
The policyholder's lifestyle habits, such as smoking or drinking, can also affect the premium payable on a Term insurance policy. If the policyholder has unhealthy habits, the premium payable may be higher.
Life insurance policies in India are priced based on a variety of factors, including the type of policy, the sum assured, the age of the policyholder, and their medical history. Here is a breakdown of the various types of life insurance policies available in India and their corresponding premiums.
Type of policy
Average premium, i.e. cost of policy
This is India's most affordable type of life insurance policy. Premiums for term insurance policies are relatively low, making them an ideal choice for those who want to protect their loved ones without breaking the bank. The premium for a term insurance policy can start from as low as Rs. 500 per month, depending on the sum assured and the policyholder's age.
Endowment policies have a higher premium than term insurance policies but offer more comprehensive coverage. The premium for an Endowment Insurance policy can range from Rs. 2,000 to Rs. 10,000 per month, depending on the sum assured and the policyholder's age.
Unit-Linked Insurance Plans
A portion of the premium paid towards a ULIP is invested in various funds, allowing policyholders to earn returns on their investment. The premium for a ULIP policy can range from Rs. 5,000 to Rs. 20,000 per month, depending on the sum assured, the policyholder's age, and the chosen investment fund.
Whole Life Insurance
These policies have a higher premium than other types of life insurance policies, as they provide coverage for a longer duration. The premium for a Whole Life Insurance policy can range from Rs. 10,000 to Rs. 50,000 per month, depending on the sum assured and the policyholder's age.
Term insurance companies use the premiums they collect from policyholders to cover the costs of providing insurance coverage, as well as to generate profits for their shareholders. Here's a breakdown of how term insurance premiums are divided.
A portion of your premium goes toward paying claims to policyholders or their beneficiaries when a covered event occurs, such as the death of the policyholder.
Term insurance companies also use a portion of premiums to cover their operating expenses, which can include marketing costs, salaries and benefits for employees, office rent, and other administrative expenses.
Term insurance companies are required to maintain reserves to ensure they have enough funds to cover future claims. A portion of premiums is set aside in these reserves to cover future obligations.
Finally, any remaining funds after claims payments, expenses, investments, and reserves are accounted for are considered profits for the insurer's shareholders.
If you have a Term insurance policy in India, you must pay your premiums regularly to keep your policy in force. Here are the most common ways to pay Term insurance premiums in India.
Many insurance companies in India offer online payment options for their policyholders. You can pay your premium using the insurer's website or mobile app. You must register for online access and link your policy to your account. Online payment options are convenient and secure, and you can pay your premium from anywhere, anytime.
You can authorise your insurer to deduct the premium amount directly from your bank account on a specified date each month or year. This option is convenient if you don't want to worry about remembering to pay your premium on time. You must provide your bank account details and sign a direct debit mandate form.
You can opt for an ECS facility to pay your premium. In this case, the premium amount will be automatically debited from your bank account on a specified date each month or year. This option is convenient and eliminates the need for physical payments.
Some insurance companies have tied up with mobile wallet companies allowing policyholders to pay their premiums through these platforms. You must link your policy to your mobile wallet account and select the premium payment option.
Before choosing a payment option, check with your insurer for any charges or fees associated with each method. Also, ensure your payment is made before the due date to avoid policy lapse.
If you have a term insurance policy in India, paying your premiums regularly is important to keep your policy in force. However, in certain circumstances, you may not be able to pay your premium on time, or you may want to skip a payment. Here's what you need to know.
If you miss your premium due date, most insurance companies offer a grace period for term insurance of 15-30 days, during which you can still pay your premium without penalty. Your policy will remain in force if you pay within the grace period.
Your policy will lapse if you don't pay your premium even after the grace period. This means you will lose your term insurance coverage and will not be eligible for benefits. You may need to pay the penalty and undergo medical tests to reinstate your term policy.
If you don't want to continue with your policy, you can surrender it to the insurer. This means you will receive a surrender value, which is the amount you will get back from the insurer after deducting surrender charges. Surrender value in term insurance is usually lower than the total premiums paid.
It's important to note that skipping premium payments can have long-term consequences, such as losing your coverage or getting a lower surrender value. If you can't pay your premium on time, it's best to contact your insurer and explain your situation. Sometimes, they may offer a payment extension or an alternate payment plan.
Renewal premiums refer to payments made by policyholders to their insurer to ensure the continuity of their insurance policy. After the initial premium payment, the policyholder is required to pay these premiums to keep the policy active and receive the benefits as per the policy agreement.
It is essential to pay renewal premiums on time as the policyholder risks losing their policy if they fail to do so. If a policyholder fails to pay the premiums within the grace period, the policy lapses and the benefits associated with it are no longer available. Additionally, reinstating a lapsed policy is a tedious process that involves paying the penalty and undergoing a health check-up, which could lead to additional costs.
Renewal premiums also help to ensure continuity of coverage, especially in the case of long-term policies such as life insurance. By paying renewal premiums regularly, policyholders can ensure that their coverage remains in force and their beneficiaries receive the sum assured in the event of their demise.
There are several ways to reduce your Term insurance premiums in India. Here are some tips that may help.
Term life insurance policies are generally cheaper than other types. This is because term policies provide coverage for a specific period of time and do not have a cash value component.
The younger you are when you purchase a Term insurance policy, the lower your premiums will be. This is because younger people are generally considered healthier and less likely to pass away.
Maintaining a healthy lifestyle can help you qualify for lower premiums. If you smoke, quit smoking. Losing weight, exercising regularly, and eating a healthy diet can also help.
Choosing a higher deductible can lower your premiums. Make sure the deductible is affordable if you ever need to make a claim.
Don't just go with the first Term insurance policy you come across. Comparing plans from different insurers to find the one that offers the best coverage at the most affordable price.
Paying a higher Term insurance premium in India may provide you with additional benefits such as higher coverage, better policy terms, and comprehensive riders. It may also increase the maturity value of the policy and provide you with better tax benefits.
The sum assured has a direct impact on the Term insurance premium in India. A higher sum assured will generally result in a higher premium, as it indicates a higher risk for the insurance company. This is because a higher sum assured means that the insurance company will have to pay a larger amount in case of the insured's death.
No, you cannot change your term insurance premium in India once the policy has been issued. However, you may have the option to change the premium payment frequency or choose to pay additional premiums for additional coverage.