How to Calculate Life Insurance Premium

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A life insurance policy is one of the important aspects of financial planning. As an earning member of your family, it is vital to ensure that your dependents remain financially stable even when you are not with them. If you have a life policy, the insurer will pay the death benefit to the nominees if an unfortunate event leads to your absence.

Before you purchase a life plan, it is essential to learn about the premium and how to compute it. If you want to learn what is life insurance, read on.

What is a premium, and why do you need to calculate it?

You have to pay a premium to the insurance provider to keep the life plan active during its tenure. You can opt for either a regular or single payment option. In the case of regular premium payment, you can pay it yearly, half-yearly, quarterly, or monthly. For a single payment, you need to pay the entire premium at once when purchasing the policy.

It is vital to calculate the premium to know how much you have to pay and create your financial plan accordingly. It is essential to be aware of your liabilities to determine your future expenses. It is also important to know the premium to compare the cost with the returns and ascertain if a policy is suitable for you.

How to calculate the premium

There are many types of life insurance policies available in India. You can choose a policy depending on your needs and expectations. For example, if you want a cost-effective policy at a substantial sum assured, a term plan will benefit you. On the other hand, you can opt for a Unit-Linked Insurance Plan (ULIP) if you want investment avenues to grow your money along with the life cover. The premium for your policy depends on multiple factors. 

When calculating the premium, the insurance company considers a variety of aspects. These include:

  1. Life stage

You can buy a life policy at any age, but young policyholders have to pay a more economical premium. When selling a life plan, the insurance providers try to lower their risk as much as possible. If you are young, the chances of you developing a serious illness are less compared to people in their 50s. So, insurers charge a lower premium to young policyholders.

Additionally, a young person can opt for a comparatively longer policy tenure. It ensures that he or she can spread the premium in smaller amounts over an extended period.   

  1. Coverage type and amount

Different life plans offer a variety of benefits and coverage. So, you can find a policy according to your requirements. Depending on your choice of coverage, the price of the policy varies. Another factor that determines the premium is if you have purchased any riders. While riders offer additional coverage, they also increase the premium. 

For example, a term insurance policy is a pure life plan that offers a large sum assured but no maturity benefit. Hence, it can be a cost-effective solution for you. 

However, if you opt for a life policy with additional benefits, such as maturity payout and investment options, the premium can be higher.

  1. Medical history

Your medical record is one of the vital factors that influences the policy’s premium. If the insurer finds that the policyholder has a life-threatening illness, they charge a higher premium. The type of disease the policyholder has and its severity also affect the cost. For young and healthy individuals, life plans are available at a much lower price.

As there are various types of life insurance policies in the market, you need to spend more time comparing them thoroughly to find the right plan. Once you decide which life insurance policy is best for your needs, you can take these aspects into account to ascertain its premium.