What features of life insurance affect the premium?
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What's one of the first things that you look for when you're shopping for life insurance? Well, if you're like most people, you'll want to know the amount of premium that the insurer will charge. After all, only if the premium actually falls within your budget can you go ahead and buy the life insurance plan you're interested in, right?
But have you ever wondered what affects the premium for your life cover? Sure, there are the commonly discussed factors like your age, gender, lifestyle habits and family medical history.
However, did you know that the life insurance plan itself can affect the premiums charged for the cover? Yes, that's right. The features of your life insurance plan play a major role in increasing or decreasing the premium rates charged for your policy.
Curious to know which features influence the cost of your life cover? Let's get right into the details.
The type of policy
Some kinds of life insurance are more expensive than others. So, the type of life insurance plan that you choose determines the premium that you'll be charged. For example, term insurance plans like the ABSLI DigiShield Plan are the affordable kind of life insurance, because they are pure life covers that only offer death benefits.
On the other hand, endowment plans like the ABSLI Guaranteed Milestone Plan come with higher premiums because they offer the benefit of both insurance and savings under one product. ULIPs may be even more expensive since they allow you to invest in market-linked funds. Simply put, the greater the variety of benefits a life insurance plan offers, the higher its premiums will be.
So, before you buy your life cover, ensure that you factor in the type of plan and its effect on the premiums.
The sum assured
Next comes the life cover. This is essentially the sum assured under the plan. And it is this amount that the insurance provider will pay out to the nominees in case the insured person passes away during the policy term. Needless to say, the higher the sum assured, the higher the premiums too.
So, if all other factors remain constant, a life insurance plan that offers you a cover of Rs. 50 lakhs will be more affordable than a plan that offers a sum assured of Rs. 1 crore. However, this does not mean that you should automatically opt for a lower sum assured in order to save on the premium costs. The sum assured you choose should be sufficient to protect your family in case something untoward happens to you.
The policy term
The policy term is the duration over which the life cover offered by a life insurance policy is valid. In case the insured person passes away during the policy term, the insurance company pays out the death benefits guaranteed under the plan. However, if the insured person survives the policy term, no death benefits are paid out. Instead, maturity benefits are typically paid to the policyholder in most types of insurance plans (except in term insurance plans).
The longer the policy term that you choose, the higher the premiums will be. This is because the insurer will have to provide coverage for a longer period. And with age, the mortality risk rises, thereby leading to an increased risk for the insurer. To compensate for this, the premiums increase as the policy term goes up.
This is why the premium for a plan that gives you coverage till the age of 60 is generally lower than the premiums for plans that offer whole life coverage till the age of 99 or 100.
The premium payment term
The premium payment term is another major factor that determines how much premium you will be charged. Typically, there are three ways in which you can distribute your premium payments over the policy term. Based on this, you have the following kinds of life insurance plans.
Single premium plan:Here, you only have to pay the premium once, as a lump sum amount at the time of purchase. The lump sum amount charged may be large, but you get to save on the overall premium amount.
Limited premium plan:Here, you pay your premiums for a limited period of time that is typically shorter than the policy term. When compared with the regular premium plan, the amount of each premium payment may be higher, but you get to save on the overall premium amount.
Regular premium plan:This is the most common type of premium payment term, where you pay your premiums throughout the policy term. So, while the total premium paid over the policy term may be slightly higher than the other two options, the amount of each premium payment will be lower.
The Return of Premium (ROP) option
Generally, term plans do not offer any benefits at the end of the policy term if the insured person survives this period. However, some term life insurance plans offer the additional optional ROP benefit that you can choose at the time of purchase.
This benefit essentially makes it possible for you to receive your premiums back once the policy term comes to an end. The ROP feature comes into effect provided the following two conditions are satisfied.
- The insured person survives the policy term.
- All the premiums due under the policy have been paid.
If these conditions are met, the total premium paid is refunded to the policyholder. This effectively brings the net cost of the policy down to zero. And for this benefit, the insurance company generally charges an additional premium at the time of policy purchase.
Before you make the payment and purchase any life insurance policy, you will have the option to choose from a list of add-on riders. Most life insurance providers offer the following types of riders.
- Critical illness rider
- Accidental partial/total disability rider
- Accidental death benefit rider
- Waiver of premium rider
These riders generally each come with their own individual rider sum assured. For example, in case the insured person is diagnosed with any of the critical illnesses covered by the critical illness rider, the sum assured under the rider is paid out by the insurer. This payout can then be used by the insured person to pay for the treatment costs.
The riders that you choose, the period of rider coverage that you opt for, and the rider sum assured that purchase also influence the premiums charged.
So, you see how the insurance policy itself can impact the premiums that you need to pay? When you buy your life cover online, you can generally see how the premium for your plan changes according to the customizations you make. So, you can check the premium rates real time and make your purchase when you are comfortable with the cost-benefit ratio that the plan offers.
Read next: HOW TO REDUCE YOUR INSURANCE PREMIUM?
Worried that the features you've chosen may drive your insurance premiums up? You can relax, because there are many ways to reduce your premium rates. We have a blog that gives you all the relevant details.
ONE PLAN, MANY FEATURES: ALL AT AN AFFORDABLE PREMIUM
That's the ABSLI Assured Income Plus for you. Get a host of beneficial features like fully guaranteed returns, long-term regular income, loyalty additions and more.
You also enjoy the flexibility to choose from the Income only Beneﬁt or the Income Beneﬁt with Return of Premium (RoP) for a nominal additional premium.
ABSLI DigiShield Plan (UIN 109N108V06) is a non-linked non-participating individual pure risk premium life insurance plan; upon Policyholder's selection of Plan Option 9 (Level Cover with Survival Benefit) and Plan Option 10 (Return of Premium [ROP]) this product shall be a non-linked non-participating individual life savings insurance plan. All terms & conditions are guaranteed throughout the Policy Term. GST and any other applicable taxes will be added (extra) to your premium and levied as per extant tax laws. An extra premium may be charged as per our then existing underwriting guidelines for substandard lives, smokers or people having hazardous occupations etc.
ABSLI Guaranteed Milestone Plan (UIN: 109N106V10) is a non-participating traditional insurance plan. All terms & conditions are guaranteed throughout the policy term. GST and any other applicable taxes will be added (extra) to your premium and levied as per extant tax laws. An extra premium may be charged as per our then existing underwriting guidelines for sub-standard lives, smokers or people having hazardous occupations etc. The insurance cover for the life insured (including minors) will commence on the policy issue date.
ABSLI Assured Income Plus (UIN: 109N127V04) is a non-linked non-participating individual life insurance savings plan. GST and any other applicable taxes will be added (extra) to your premium and levied as per extant tax laws. An extra premium may be charged as per our then existing underwriting guidelines for substandard lives, smokers or people having hazardous occupations etc. For policies issued on minor life, the date of commencement of risk shall be the date of commencement of the policy. Where a policy is issued on a minor life, the policy will vest after attainment of majority of the Life Insured. Where the Life Insured (whether major or minor) and Proposer/Policyholder is different, on the death of the Proposer/Policyholder, his legal heirs, in accordance with the existing succession laws, will be considered as new Proposer/Policyholder. As there is no death benefit payable on the death of the Proposer/Policyholder, the policy status does not change, and the policy continues.
ABSLI Life Shield Plan
A term insurance plan that offers you the flexibility of plan options suitable for your family's non- negotiable goals and ensure they need not compromise on their lifestyle. UIN: 109N109V06
- Choice of 8 plan options
- Cover your spouse under the same policy
- Longer Life cover till age 85
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