banner

How to do Life Insurance Premium Calculation

Know more about the process of insurance premium calculation

#Life-Insurance 100 Views 84 Shares
banner
Rated by users

All policyholders have to pay a certain amount of money as life insurance premiums over a period to sustain their insurance plan. Most insurance providers require the payment on a monthly, half-yearly, or yearly basis. In some cases, the insured may be required to pay the entire amount upfront, before coverage starts. As a policyholder, you might wonder about the process of life insurance premium calculation. Knowing how to calculate insurance premium is crucial before you make any final decision.

Several factors affect the insurance premium calculation for a specific plan. When determining the coverage amount, it helps be well informed and straightforward about your financial requirements. It is incredibly vital to avoid any mistakes during the insurance premium calculation.   

Why Is It Important to Estimate Life Insurance Premium? 

When a life insurance policy is purchased, the insurer and policyholder enter into a contract that guarantees financial assistance to the beneficiary when the need arises. Many insurance providers offer varying benefits for a similar insurance plan. In case the insured individual is unable to pay the premium on time, it may result in the policy lapse.

There is a point in life when financial planning becomes necessary. It allows you to ascertain the future expenses and keep them aligned with the income. Along with that, it is always favorable to prepare for any possible risks. Life insurance is one of the most significant financial decisions that affect you and your loved ones. Understanding your financial requirements will help immensely in insurance premium calculation. It will give you an idea of the coverage amount suitable to your family’s future expenses. 

When you are purchasing a life insurance policy, it will be useful to calculate insurance premiums and lay out a financial plan for the years to come. It is also essential to regularly review your life insurance needs to ensure that the policy aligns with your life changes. For example, events in life such as marriage, the birth of a child, income fluctuations, child’s education, and investment in properties can impact the insurance premium calculation. It is best to have an early start to avoid any regrets in the future to ensure that you and your loved ones are financially secure.

Factors That Determine Life Insurance Premium

Some personal and policy-related factors determine insurance charges. Let’s have a look at some of them.

1. Age 

It makes sense to invest in a life insurance plan at an early age, preferably when you start earning, and some people depend on you financially. Age affects the insurance premium calculation since younger people are more likely to be healthier and opt for a more extended period of cover, thereby enjoying lower insurance premiums. 

2. Gender

It might seem surprising, but the gender of the insured also impacts the insurance premium calculation. On average, men also tend to be involved in riskier work or lifestyle environments. It may result in women paying lower insurance charges than men.

3. Medical History 

Your medical history plays a massive role in the insurance premium calculation. Insurance providers examine the condition of your health to understand future financial needs better.

However, the premium calculation impact also depends on the severity of any illnesses you may have. In the case of a life-threatening disease, the premium costs are likely to be higher.

Also Read: Why Medical Test is Important in Term Insurance?

4. Financial Dependents 

The insurance premium calculation also takes into account the number of financial dependants on the insured. If you are the family's sole breadwinner, you might require higher coverage for your family members. It will translate to a higher premium cost consequently.

5. Occupation

People exposed to high-risk environments in their jobs, for example, pilots, soldiers, mining, or oil and gas workers, may expect a higher insurance premium for their policy.

6. Liabilities 

It is essential to consider any financial liabilities that might demand a huge portion of your income, such as property loans. Insurance premium calculation must be in alignment with any such liability to ensure your ability to pay them. 

How to Calculate Life Insurance Premium?

Since the insurers guarantee financial assistance in crisis times, they consider several factors during insurance premium calculation.

Here are some of the critical factors affecting your insurance charges.

How to Calculate Life Insurance Premium?

Since the insurers guarantee financial assistance in crisis times, they consider several factors during insurance premium calculation.

Here are some of the critical factors affecting your insurance charges.

 

1. When are you buying the insurance policy?

There is no prescribed right or wrong time to invest in an insurance policy. However, purchasing a plan at a younger age might benefit you since the insurance providers do a thorough risk assessment.

A more youthful individual will likely present lower risks and favour the insurance premium calculation. For example, a person in his late twenties is much less likely to suffer from a severe illness than someone in their late fifties.

It will reduce the coverage amount required by them. Additionally, an insurance plan at a younger age will allow you to spread the duration and decrease the premium costs.

2. What kind of coverage do you require?

In general, there are various types of life insurance policies catering to different financial needs. It will help assess your and requirements from a plan and investing abilities to calculate insurance premium effectively. Furthermore, there are various combinations of riders you can opt for to strengthen your coverage further.  

For example, Max Life offers a critical illness insurance to your term insurance policy to equip your plan to provide healthcare assistance.

3. How much coverage do you require? 

The amount of coverage that an individual requires depends on their current and probable financial condition in the future. Charting major expenses while taking into account any unfortunate circumstances will significantly help in insurance premium calculation.

In general, the lesser coverage, the cheaper the premium costs. The number of dependents and lifestyle of the insured also impact the insurance premium calculation.

Insurance providers will also look at your personal information, such as medical and driving records, credit history, lifestyle, occupation, and smoking or drinking habits. It is to accurately assess the risk profile of the insured and apply it in insurance premium calculation.  

How to Lower Your Insurance Premiums?

Everyone wishes to live a healthy, safe, and stable life. It is always favourable to reduce your expenses and optimize income. While life insurance policies are crucial investments, it can be stressful to keep up with the financial demands of it if you are not careful. In general, lower premium means lesser coverage. 

How to Lower Your Insurance Premiums?

Everyone wishes to live a healthy, safe, and stable life. It is always favourable to reduce your expenses and optimize income. While life insurance policies are crucial investments, it can be stressful to keep up with the financial demands of it if you are not careful. In general, lower premium means lesser coverage. 

 

However, there are a few things to be kept in mind during insurance premium calculation to lower the stress on your budget.

1. Policy Term 

It is essential to choose a suitable policy term for your financial condition, considering the liabilities. Insurance premium calculation assumes the insured individual’s ability to pay premium costs for the tenure as well. For example, if you are a salaried individual, it makes sense to opt for a longer-term that will allow a steady premium rate.

It may seem appealing to reduce the tenure of the plan and increase premium costs, but insurance policies serve the purpose of providing a financial cushion. Therefore, remember to carefully assess your long-term needs at the time of insurance premium calculation.

2. Lifestyle 

Since medical history has a significant impact on the insurance premium calculation, it will work in your favour in more than one way to maintain a healthy lifestyle. Insurers consider smoking or drinking habits as health risks and might, therefore, charge a higher premium due to it. Be sure to take care of your health and avail of optimum benefits from your insurance policy.

3. Tax Benefits 

While you may not directly affect the insurance premium calculation much, certain tax benefits may relieve some of the pressure. The Income Tax Department of India allows tax deductions and exemptions under Section 80C when it comes to life insurance expenditures. It serves as an incentive to buy life insurance without worrying about premium costs. 

Frequently Asked Questions (FAQs)

Q. Why is Life Insurance Important? 

A. Life insurance is essential to take care of your family’s needs in times of need. It will serve as a financial cushion and safeguard their interests. It will help them maintain the standard of living even during a time of crisis.

Q. What Should I Look for in a Life Insurance Policy? 

A. You must check if there is the availability of guarantee of return and understand the terms and conditions such as the lock-in period, details of insurance premium calculation, terms for the revival of the policy, and more.

Q. Should you opt for a life insurance policy based on a lower premium? 

A. While lower premium rates are attractive, remember that the coverage will be following that as well. Since higher premium calculation means higher coverage, it works the same for lower rates as well. In cases where the coverage seems to be adequate, check the policy's terms to be favourable.

Q. Are There Different Options to Pay the Premium? 

A. Yes, most insurers offer a monthly, half-yearly, or yearly payment option depending on the types of insurance. It is best to consider this at the time of insurance premium calculation.

Q. What Will Happen If I Do Not Pay the Premium On Time? 

A. Most insurers provide a grace period of 15-30 days on the payment of premiums. Failure to pay the premium after that may result in the lapseof the policy. You might want to discuss the terms regarding payment with your insurance provider. 

Arn:- Jan21/Bg/13E