Term insurance is a great financial protection tool. It is easy to understand and highly cost-effective. When you opt for a term insurance plan, you receive a quote that has various components corresponding to the type of coverage and options you have chosen, while some other are statutory additions.
Let us learn more.
Premium varies with Age
As you age, your "health risk' increases, which increases the risk for the insurers. To offset this risk, insurers charge a higher premium. Hence, it is advisable to buy insurance as early as possible.
The Max Life calculator shows the difference in premium that Mr. Singh (25 years old) and Mr. Sharma (35 years old) will have to pay on a ₹ 25 lakhs cover for a 40-year term policy. Assuming, both are non-smokers, for a life cover of Rs 25 lakhs, over a policy duration of 40 years, Mr. Singh has to pay an annual premium of Rs 2,500 while Mr. Sharma has to pay a premium of Rs. 3,950 for the same cover.
As you can see, Mr. Sharma has to pay a 58% higher premium because he has started 10 years after Mr. Singh. Hence, by planning early, one can easily save the extra premium.
Check the Base Premium
Base premium is the minimum amount payable for getting the life cover, without the riders and taxes. This is based on the age, gender, and smoking habit of the person to be insured. The base premium for online term insurance plans is generally lower than that for offline plans due to less distribution costs.
Check the Riders cost
A 'Rider' is additional coverage with your basic plan. There are various riders you can opt for such as for accidental coverage, critical illness, disability, etc, based on your specific needs.
Ascertain the Tax Component
Like most other services, life insurance also attracts Service Tax. This is a standard addition across policy types and insurance companies. So whenever you receive an insurance quote, look closely if it is inclusive of the Service Tax component or not.
Currently, the rate of service tax is 14% and the insured can claim tax benefits (under section 80C of the IT Act) for the life insurance premium.
Consider the Lapse Charged Payable for Policy Revival
Insurers have a Policy Lapse clause defined in every insurance policy. The clause states that, if you fail to pay the premium within a certain no. of days from the due date, the policy lapses and no benefits are payable.
The policy can then be revived by paying the stipulated charges. Make note of these charges when you opt for a life insurance policy. The lapse charges include overdue premiums, taxes, late fees (penalty) and interest. These charges can be easily avoided by opting for a Standing Instruction for the premium payments.
Getting a Medical Test and its Implication
If you are over 50 years old or have applied for a high sum assured, you might have to undergo a medical test. If there are no serious health risks, your policy is issued at standard terms. However, if you are not in good health, and if the medical examination highlights a risk, you might receive a counteroffer to either reduce the life cover or pay a higher premium (called Rate Up).
Read the T&Cs in detail and examine a quote closely before finalizing an insurance policy.
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