What is Term Insurance Premium?

The amount you must pay to maintain your term insurance policy is known as your term insurance premium. Because it is determined by a number of criteria, including your age, health, the quantity of coverage, and the duration of your policy, the premium amount varies from person to person. Choosing the appropriate premium payment frequency based on your financial situation is ideal. Read on to learn all about term insurance premiums and make the best choice for your financial future.

The amount you must pay to maintain your term insurance policy is known...

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What is Term Insurance?

Term insurance is one of the most popular types of Life insurance, offering straightforward protection for a specific period, or "term." With term insurance, policyholders pay a regular premium in exchange for coverage. If the insured person passes away during the policy term, the insurance provider pays the beneficiaries a lump sum (called the "sum assured"). This provides financial security, ensuring that loved ones have the resources to cover expenses like loans, household needs, or education costs.

Term insurance is one of the most affordable life insurance policies available. It works on the simple concept of income replacement.
You can purchase a term plan for 10, 20, 30 years, or more, depending on your needs.
You pay your insurer a fixed premium to keep your policy active. In return, your insurance company will provide a death benefit to your nominees if you pass away unexpectedly during the policy term.
This death benefit or sum assured is usually paid out as a lump sum and is generally tax-free.
The policy's validity depends on timely premium payment. Failure to make payments may result in loss of coverage.

Why is Term Insurance Premium Important?

One key element of term insurance is the *premium*—the recurring cost that keeps the policy active. Premiums are typically paid monthly, quarterly, semi-annually, or annually, depending on the terms set by the insurer and the policyholder's preference. If premiums are not paid on time, the policy may lapse, resulting in the loss of coverage. Understanding how premiums are calculated, what factors affect their cost, and how they vary across policies can help you make better-informed decisions when choosing term insurance.

How is Term Insurance Premium Calculated?

The premium amount for term insurance is calculated based on several factors. Insurance companies use actuarial tables and algorithms to analyse data, assess risks, and set premium rates that balance competitiveness with profitability. When setting premiums, they also consider administrative costs, projected claims, and desired profit margins.

Here's a list of factors affecting Term Insurance premiums.

Age: Younger individuals are likely to pay a lower amount as they are less likely to have health issues compared to older individuals.

Occupation: Job matters, too! Risky occupations like construction or mining can lead to higher premiums.

Lifestyle Habits: Individuals who indulge in risky activities such as smoking or consuming alcohol may have to pay a higher premium amount.

Policy Term: The policy term is the duration of the TI policy. The amount is inversely proportional to the policy term. A shorter policy term results in a higher payable amount, while a longer one results in a lower one.

Health: Insurance companies may require the policyholder to undergo medical tests and examinations to assess their health. Individuals with medical issues or pre-existing conditions may have to pay a higher premium.

Life Coverage: The sum assured or coverage amount is the amount the nominees receive in case of the policyholder's demise. If the sum assured is on the higher side, the premium will also be on the higher side.

Types of Term Insurance Premium Payment Options

The different options available in Term Insurance are as follows. It is essential to consider the payment options carefully and choose the best term insurance premium that 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.

Level premium option

Here, the premium remains the same throughout the policy term. It is calculated based on the policyholder's age, health, and other factors at purchase. This option suits individuals who want to keep their payments consistent and predictable.

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.

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.

Online Term Insurance Premium Calculator: How Does it Work?

Online Term Life Insurance premium calculators require you to input information such as age, sum assured, policy term, and lifestyle habits to estimate the premium amount. Here's how it works:

Basic Information

First, you'll provide some basic information about yourself, like your age, gender, and the city you live in. It helps the term policy calculator understand your circumstances.

Financial Details

Next, you'll need to share details about your financial situation. This includes your monthly income, expenses, and any existing debts. Don't worry; it ensures your family has enough money to cover their needs.

Coverage Period

You'll also need to decide how long the insurance lasts. This is called the "term." Depending on your needs, it could be 10 years, 20 years, or more.

Sum Assured

How much money do you want your family to receive if something happens to you? The calculator will help you determine the right amount based on your financial details and the coverage period.

Premium Calculation

The calculator will then calculate how much you must regularly pay (usually monthly or yearly) to get the coverage you want. This is called the premium. It considers factors like your age, health, and the coverage amount.

Comparison

Some calculators may even show you quotes from different insurance companies so you can compare prices and choose the one that suits you best.

Remember, the premium amount provided by a calculator is only an estimate, and the actual amount may vary based on several factors.

Why are Term Insurance Premiums Affordable?

Due to several factors, term insurance is often known for its cost-effectiveness compared to other Life Insurance policies, such as whole Life Insurance. Let's look at three key reasons.

Limited Coverage Period

Designed to provide coverage for a specific period.

No Cash Value

Premiums don't go into building cash value over time, and they are focused on providing the death benefit.

Younger Policyholders

Young adults pose a lower mortality risk to insurance companies.

How to Pay Term Insurance Premium?

When 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 in Term Insurance. In this option, the policyholder pays the premium throughout the term, ranging 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 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 needing further payments. For example, a policyholder can pay premiums for 10 years for a 20-year term policy. After 10 years, the policy remains active without any further payments required. This option suits individuals who want to complete their payments early in the policy term or have a lump sum to invest.

Single premium payment option

This option allows the policyholder to pay the premium in a single lump sum at the beginning of the term. This option is suitable for individuals who have substantial money to invest or want to avoid the hassle of regular payments. This option may offer discounts, making them attractive to individuals who wish to save money in the long run.

Flexible premium payment option

This option lets the policyholder choose the premium payment frequency, amount, and period. This option provides flexibility and allows policyholders to adjust the payment schedule based on their financial situation. This suits individuals with irregular incomes or who want to pay the premium based on their financial goals.

What is the Flexibility of ACKO Life Flexi Term Plan?

Regarding term insurance premiums,the ACKO Life Flexi Term Plan offers extensive life coverage at an affordable premium. This exclusive plan also provides unmatched flexibility to customise coverage based on your evolving needs. Some of the things you can customise with this plan include:

Flexibility to adjust the sum assured as coverage needed to protect financial dependents may change with factors like the addition of dependents (e.g., children), new financial obligations (e.g., loans), or lifestyle changes (e.g., salary increases or promotions).
Flexibility to customise policy terms, payment frequency, and payment options.
Flexibility to change nominees
Flexibility to add valuable riders to accommodate changes across life.

Understanding this Unique Term Plan Premium with an example:

Rahul married at 30 and bought a 1 crore coverage ACKO Flexi Term Life Plan plan for his spouse. His annual income is only 10 lakh, but the premiums are highly pocket-friendly.

At 35, with two kids and a 50 lakh home loan, he increased the coverage to ₹ 2 Crore as his responsibilities increased. By 45, after repaying the home loan and accumulating a substantial income corpus for his kids' education, he reduced coverage back to ₹1 crore. This shows how ACKO Life Flexi Term Plan adapts to individuals' changing life circumstances with affordable premiums across different sum assured adjustments.

Important Terms You Should Know About Term Insurance Premium

A basic knowledge of various terms related to the payment of term insurance premiums will be helpful for better managing your policy.

Premium Payment Frequency

Premium payment frequency refers to how often an insurance policyholder must pay the premiums on their insurance policy. The payment frequency 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 how the policyholder pays the premium to the insurance company. It can be paid online or offline. 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 online payment portals.

Auto-debit Option

Most insurance companies offer auto-debit options for hassle-free payments to facilitate the ease of payment and ensure regularity. The amount is automatically deducted from the policyholder's bank account at regular intervals. This option ensures the policy remains active and prevents the policyholder from missing the payment.

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 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

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 penalty. However, the policy may lapse or become inactive if the premium is not paid within the grace period.

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. Opting for auto-debit options or set reminders is advisable to avoid missing premium payments.

Conclusion

A term insurance premium is the payment you make to an insurance company to obtain coverage under a term life insurance policy. Premiums can be paid monthly, quarterly, semi-annually, or annually, depending on the policy terms and the insurer. Insurance providers have actuaries employed to estimate appropriate term insurance premiums for individuals. Term Life Insurance calculators are a practical tool for Indian consumers to assess potential costs (premiums) based on their coverage needs and financial situation. By comparing different policy options and premium amounts, individuals can select a term plan that provides the desired protection for their family while staying within their budget.