Term Insurance Premium: Everything You Need to Know
What It Is, Different Types, and How Do Term Insurance Premium Calculators Work?
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Term Insurance (TI) is a type of life insurance that provides coverage for a specified period, usually 5 to 30 years. It is one of the most affordable types of life insurance policies and offers financial security to your loved ones in case of your untimely death. The premium is what the policyholder pays to the insurer for the Term Insurance policy. Understanding it is an important aspect of Term insurance, as it affects the coverage and benefits offered by the policy.
Types of premium in Term Insurance
The different types of premium options available in Term Insurance are as follows. It is essential to carefully consider the payment options available and choose the one that best suits your financial needs and obligations. Each option has its benefits and drawbacks, and it is essential to assess your financial situation and consult with an insurance expert before making a decision.
1. Level premium option
Here, the premium remains constant throughout the policy term. It is calculated based on the policyholder's age, health, and other factors at the time of purchase. This option is suitable for individuals who want to keep their payments consistent and predictable.
2. Increasing premium option
Here, the premium increases over time. The payment starts low and gradually increases every year. This is suitable for individuals who want to pay lower premiums during the initial years of the policy term and can afford to pay higher premiums in the future.
3. Decreasing premium option
Here, the premium decreases over time. The payment starts high and gradually decreases every year. This option is suitable for individuals who want to pay higher premiums during the initial years of the policy term.
Calculating premium in Term Insurance
The premium amount in Term insurance is calculated based on several factors, including age, health, sum assured, policy term, and more. Insurance companies use actuarial tables and complex algorithms to determine the payable amount. Here’s a list of factors affecting Term Insurance premium.
Age
As individuals age, their body composition changes, influencing their BSA. Older individuals may have a higher proportion of body fat and a lower proportion of muscle mass, which can affect BSA calculations.
2. Rectangle or "H" Shape
The rectangle body shape features a more straight and proportionate figure, with relatively aligned shoulders and waist. Men with this shape tend to have a similar width throughout their upper body, waist, and hips.
3. Sum Assured
The sum assured or coverage amount is the amount paid by the insurance company to the policyholder's family in case of their untimely demise. If the sum assured is on the higher side, the premium will also be on the higher side.
4. Inverted Triangle or "Trapezoid" Shape
The shoulders are more comprehensive than the waist and hips in this body shape, creating a tapering effect towards the bottom. Men with this shape tend to have broader shoulders and a well-developed upper body than their narrower waist and hips.
5. Lifestyle Habits
Individuals who indulge in risky activities such as smoking or consuming alcohol may have to pay a higher premium amount.
Combination of factors
Insurance companies use a combination of these factors to determine the payable amount. It is calculated using complex algorithms and actuarial tables. Companies may also offer discounts based on factors such as payment mode, policy term, and sum assured.
Online premium calculators are available to help individuals estimate the payable amount based on their needs and requirements. These calculators require individuals to input information such as age, sum assured, policy term, and lifestyle habits to provide an estimate of the premium amount. It is essential to note that the amount provided by the calculator is only an estimate, and the actual amount may vary based on several factors.
Important terms related to payment of premium in Term Insurance
A basic knowledge of various terms related to the payment of Term Insurance premium will be helpful for a better management of your TI policy.
Premium payment frequency
Premium payment frequency refers to how often an insurance policyholder is required to pay the premiums on their insurance policy. The payment frequency of the payment can be monthly, quarterly, or annually. Policyholders can select the frequency that suits their financial situation and budget.
Modes of Payment (online and offline payment)
Mode of payment denotes the way in which the policyholder is paying the premium to the insurance company. It can be paid through online mode or offline mode. Online modes of payment include net banking, credit/debit cards, e-wallets, and mobile wallets. Offline modes of payment include cheques and demand drafts. Insurance companies also have their payment portals for online payments.
Auto-debit option
To facilitate the ease of payment and ensure regularity of payment, most of the insurance companies offer auto-debit options for hassle-free payments. Here, the amount is automatically deducted from the policyholder's bank account at regular intervals. This option ensures that the policy remains active and prevents the policyholder from missing the payment.
Grace Period
In case the policyholder misses a payment, the insurance company usually provides a grace period for payment. The grace period varies between 15 to 30 days, depending on the insurance company and policy terms. During the grace period, the policy remains active, and the policyholder can make the pending payment without any penalty. However, if the premium is not paid within the grace period, the policy may lapse or become inactive.
It is essential to ensure timely payment to keep the policy active and prevent any inconvenience to the policyholder's family in case of their untimely demise. It is advisable to opt for auto-debit options or set reminders to avoid missing premium payments.
Premium payment options in Term Insurance
When you are buying a Term Insurance policy, it is essential to understand the different premium payment options available. The right option will depend on your financial situation and your specific requirements.
Regular premium payment option
This option is the most common option in Term Insurance. In this option, the policyholder pays the premium throughout the policy term, which can range from 5 to 30 years. The premium payment frequency can be monthly, quarterly, or annual, depending on the policyholder's preference. This option allows for more manageable and consistent payments over an extended period, and it is suitable for individuals with a steady income.
Limited premium payment option
This option allows the policyholder to pay the premium for a limited period, after which the policy continues without the need for further payments. For example, a policyholder can choose to pay premiums for 10 years for a 20-year term policy. After the 10-year period, the policy remains active without any further payments required. This option is suitable for individuals who want to complete their payments early in the policy term or have a lump sum amount to invest.
Single premium payment option
This option allows the policyholder to pay the premium in a single lump sum amount at the beginning of the policy term. This option is suitable for individuals who have a substantial amount of money to invest or want to avoid the hassle of regular payments. This option may offer discounts, making them attractive to individuals who want to save money in the long run.
Flexible premium payment option
This option allows the policyholder to choose the premium payment frequency, amount, and even the payment period. This option provides flexibility and allows policyholders to adjust the payment schedule based on their financial situation. This is suitable for individuals who have an irregular income or want to pay the premium based on their financial goals..
Easy access
Term Insurance offers several benefits, such as high coverage at an affordable premium, tax benefits, and financial security for one's family in case of their sudden demise. It is advisable to opt for a term insurance policy with a sum assured that provides sufficient financial cover to one's family.
With the availability of online premium calculators and information on the insurer's website/app, it has become easier for individuals to choose the right Term insurance policy for themselves and their loved ones.
Frequently Asked Questions
Here’s a list of common questions and answers related to premium in Term Insurance.
How is the premium calculated in Term Insurance?
The premium amount in Term Insurance is calculated based on several factors such as age, health, sum assured, policy term, etc. Insurance companies also consider actuarial tables and complex algorithms to arrive at the payable amount. Online premium calculators are also available to help individuals estimate the premium amount based on their needs and requirements.
What are the different premium payment options available in Term Insurance?
The premium can be paid on a monthly, quarterly, or annual basis. Policyholders can choose the frequency of payments according to their financial situation. Some insurance companies also offer auto-debit options for hassle-free payments.
Can the premium amount be changed during the policy term?
In the level premium option, the amount remains the same throughout the policy term. However, in increasing and decreasing premium options, the amount may vary based on the policyholder's needs.
What happens if the policyholder misses a premium payment?
In case the policyholder misses a premium payment, the insurance company usually provides a grace period for the payment. If it is not paid within the grace period, the policy may lapse or become inactive.
Can the premium payment frequency be changed during the policy term?
Some insurance companies may allow policyholders to change the payment frequency during the policy term. However, it is advisable to check the policy terms and conditions and consult with the insurer before making any changes.
What are the consequences of non-payment of premium in Term Insurance?
Non-payment of premium in Term Insurance can lead to the policy lapsing or becoming inactive. In such a case, the policyholder may lose the benefits of the policy, including the sum assured and other benefits.
How can one ensure timely payment of premium in Term Insurance?
One can ensure timely payment of premium in Term Insurance by opting for auto-debit options or setting reminders for payment. It is also advisable to keep sufficient funds in the bank account to avoid the policy lapsing due to insufficient funds.
Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on industry experience and several secondary sources on the internet, and is subject to changes.
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