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An insurance premium is an amount of money that an individual or a business pays to the insurance provider periodically. Whether you are investing in a home, life, or health, insurance premiums work more or less the same.
Many people look forward to knowing what is premium in insurance before buying any plan. In general, they need to pay the total insurance premium in instalments. In some cases, they can pay the entire amount upfront before the start of the policy. Policyholders must pay the premiums on time to avoid cancellation of their plan.
Insurance providers stipulate the insurance premium amount beforehand, depending on the coverage and other factors related to the insured. These often include assessing the likelihood of making claims, employment details, their medical condition, among others.
Also Read: What is Insurance?
As the policyholder, you must consider several other things before paying the insurance premium for a specific plan. Let’s have a look at them to have a better understanding of what is premium in insurance.
How to Calculate Insurance Premiums?
One of the most crucial financial decisions in one’s life is to invest in insurance policies. Life insurance, to be precise, acts as a safeguard for your family’s well-being after you. As a policyholder, it is crucial for you to understand insurance premium meaning and recognize your specific requirements to determine the sum assured accurately.
Life insurance premiums are in place to keep the policy in force. These insurance premiums are carefully determined based on several factors related to the insured’s life. Therefore, you must understand these factors that may affect the amount, making it higher or lower, including the possible discount on insurance premium payment.
Age
It is often suggested to purchase an insurance policy at a younger age to avoid higher life insurance premiums. Insurance providers consider age to be one of the primary factors while stipulating the amount.
Gender
The gender of the insured is also significant for insurers. It is so because studies suggest that women, on average, live nearly five years longer than men. Therefore, women might enjoy slightly lower life insurance premiums.
Habits
As a part of insurance premium meaning, you should know that habits such as smoking or drinking also affect the life insurance premium as they put the individual at a higher risk of ailments.
Gender
The gender of the insured is also significant for insurers. It is so because studies suggest that women, on average, live nearly five years longer than men. Therefore, women might enjoy slightly lower life insurance premiums.
Habits
As a part of insurance premium meaning, you should know that habits such as smoking or drinking also affect the life insurance premium as they put the individual at a higher risk of ailments. dynamics. citizen parents.
Medical History
The medical history is an essential factor since it dictates the life risks associated with the insured. In case of family history of critical illnesses such as cancer and heart diseases, the insurance premium might be higher.
Profession
The nature of your work also determines the insurance premium. Individuals employed in high-risk occupations such as the mining industry, oil and gas may have to pay a higher amount.
Lifestyle Choices
People who regularly engage in life-risking activities such as mountain climbing, racing, and other such activities may cause the insurer to stipulate a higher insurance premium.
You can also calculate your term insurance premium even before buying your term insurance just by clicking on the button below:
What to Consider While Buying an Insurance Policy?
Apart from the insurance premium, other factors make a policy desirable. As the policyholder, you must be well-informed before purchasing an insurance policy. It affects the life of you and your loved ones substantially in times of need. Here are some key things to consider while buying an insurance policy.
1. Current Life Stage
The requirements of your policy are also affected by where you are in life while purchasing them. For example, your first job, marriage, your children's birth will create different financial requirements.
The primary role of insurance is to offer financial assistance to your loved ones in times of crisis. Therefore, the sum assured may vary depending on the number of financial dependents and insurance premiums you can easily afford.
2. Financial Requirements
In each individual’s life, financial planning is vital to remain stress-free and peaceful. It is crucial to understand and plan your family’s future monetary needs at the time of purchase. Calculate a suitable life insurance premium amount to avoid any disappointment in the future.
3. Duration of the Policy
It is also essential to decide on the desired duration of the policy. A longer or shorter period will affect the insurance premiums as well.
2. Financial Requirements
In each individual’s life, financial planning is vital to remain stress-free and peaceful. It is crucial to understand and plan your family’s future monetary needs at the time of purchase. Calculate a suitable life insurance premium amount to avoid any disappointment in the future.
3. Duration of the Policy
It is also essential to decide on the desired duration of the policy. A longer or shorter period will affect the insurance premiums as well.
4. Riders
Insurers offer specific add-ons or riders above your existing plan to customize the policy to your requirements better. Make sure to check for their availability while choosing a suitable plan and the additional insurance premium that needs to be paid to strengthen it further.
5. Claim Settlement Ratio
As the policyholder, you must check the claim settlement ratio of your insurance provider. It is the frequency at which the insurer settles claims to their policies. Different insurers have varying claim settlement ratios.
6. Terms and Conditions
Lastly, be sure to check the terms and conditions of your plan. It will help avoid any unwanted circumstances later.
How to Choose an Insurance Policy with Adequate Coverage?
While purchasing an insurance policy, it is crucial to opt for adequate coverage for your future needs. Certain factors determine the amount of coverage you may require. As mentioned earlier, be sure to understand your current and future financial needs to arrive at a suitable coverage amount.
Consider your liabilities, such as debts, including home, education, or vehicle loans, to zero in on an insurance premium that can fit well into your financial planning.
Since the insurance cover serves future expenses, you must consider the inflation rate before deciding on the coverage. Additionally, choosing a plan with adequate coverage at the right age will help you comfortably cover the insurance premium costs as well.
How Does Deductible Affect Insurance Premium?
Deductibles in an insurance policy are the money the policyholder pays before the insurance policy covers the expenses. Simply put, it is the money you pay out of your pocket to share the cost of claims.
These deductibles are common to health and motor insurance policies. Many people opt for a higher deductible to lower their insurance premium cost or vice versa, depending on their financial requirements.
Deductibles in insurance policies serve the insurer as well as the policyholder. Since the insured shares the cost of a claim to an extent, it reduces the chances of frequent claims to the policy due to reckless behavior. It also allows a degree of financial stability to the insurer so that they are capable of assisting during actual catastrophic losses.
Deductibles in an insurance policy are the money the policyholder pays before the insurance policy covers the expenses. Simply put, it is the money you pay out of your pocket to share the cost of claims.
These deductibles are common to health and motor insurance policies. Many people opt for a higher deductible to lower their insurance premium cost or vice versa, depending on their financial requirements.
Deductibles in insurance policies serve the insurer as well as the policyholder. Since the insured shares the cost of a claim to an extent, it reduces the chances of frequent claims to the policy due to reckless behavior. It also allows a degree of financial stability to the insurer so that they are capable of assisting during actual catastrophic losses.
Insurance Tax Benefits
One of the many perks of insurance policies are the associated tax benefits. The government of India allows certain tax deductions on the insurance premiums paid by the policyholders. It is a significant incentive for people to invest in insurance policies.
· Section 80D of the Income Tax Act
Section 80D allows tax benefits for health insurance premiums. There are different limitations on the maximum deductible amount depending on the type of health plan.
For example, if the health insurance covers you and your family members, the total deductible is set at Rs. 25,000. In case you have a plan for parents under the age of 60, you are eligible for an additional Rs—25,000 tax benefit. Similarly, the limitations on the maximum deductible for insurance premium differ as per the terms of the health plan.
· Section 80C of the Income Tax Act
Section 80C allows tax benefits towards the life insurance premiums paid for various policies such as whole life plans, endowment plans, ULIPs, term insurance plans, money-back policies, and such.
There are other income tax-saving tips that you can use to avail of optimum benefits from your plan.
Frequently Asked Questions (FAQs)
Q. Can The Premium Change During The Tenure?
A. No, the insurance premiums are determined at the time of purchase and do not change over the plan's entire tenure.
Q. What Happens If I cannot Pay The Insurance Premium on time?
A. If you fail to pay premium on due date, a grace period is given to make the payment. During the grace period, the insured can still avail of the benefits of the insurance policy. This period may also depend on the frequency of insurance premium payments. It will be lower for monthly and higher for yearly or half-yearly.
Q. Can I Make A Claim During the Grace Period?
A. The insurance cover works the same during the grace period. There are no penalty charges, and the insurance premium amount remains unchanged. In case of an unfortunate incident during the grace period, the claim settlement process stays the same.
Q. What Is Waiver Of Premium rider?
A. Under the waiver of premium rider, insurers may waive any future insurance premium payments if the insured is critically ill, injured, or disabled. It comes as an optional rider on the life insurance plans.
Q. What Happens If I Stop Paying Insurance Premiums?
A. If you exceed your insurance policy's grace period, in all likelihood, the policy will lapse. However, many insurers offer an option to restore or reinstate the policy. Keep in mind that the process of restoring the insurance policy will likely be expensive, and you will have to pay penalties.
ARN No :- Sept21/Bg/07