How Your Life Insurance Needs Can Affect Your Term Insurance Premium
We all want our loved ones to live a secure and financially sound life. It is every individual’s responsibility to ensure that their family members are financially sound even after their demise. Whether you are 25 and starting to think about your first job, a parent with young children, or nearing retirement, you need to think about life insurance.
Term insurance is the most basic form of life cover and is the easiest to understand. With term plans, you make a small annual payment to the insurer, and they pay your family a certain amount of money upon your death. However, you may have noticed that two people of the same age can pay significantly different premiums. What determines the rates? Your life needs dictate how much you should spend on term insurance. Let us explain everything in detail.
What is a Term Premium?
A premium is a fee that you pay to an insurer for coverage. It is similar to how you pay a certain amount every month for your mobile network or cable connection. The amount is determined by the risk the insurer takes by providing you with the cover. If the risk level is high, the premium is expensive, and if the risk is low, the cost is affordable.
6 Ways Life Needs Determine Term Premium Cost
Your Income and Family Size
The amount you earn determines how much cover you should take. It is essential to have an appropriate sum assured based on your income.
- Higher Income: If you earn more, say, for example, you are a parent of two or more children, you may want to take a higher sum assured so that your children can continue to lead the same lifestyle that you have given them. You may need a sum assured of about ₹1 or 2 crore. Obviously, a ₹2 crore plan will cost more than a ₹50 lakh plan.
- Lower Income: If you have a modest lifestyle, you may not need a huge sum assured. In this case, your premium will be affordable.
Your Age
Age is one of the most crucial factors that determine your premium. The younger you are, the lower your premium. If you buy a plan at a young age, say, in your late 20s, you will enjoy very low rates. The rates remain the same throughout the policy tenure.
However, if you decide to buy a policy when you are in your 40s or 50s, your premium will be expensive.
Your Loans and Debts
Do you have any outstanding personal, vehicle, or home loans? In case of your demise, your family will be responsible for paying off your debts. Therefore, the sum assured on your life insurance should be enough to pay off your debts. Additionally, you may have to pay extra to cover the cost of your family’s livelihood. Extra cover implies higher premiums.
Your Health and Lifestyle
Your health status and lifestyle are crucial determinants of your term premium. Tobacco users and individuals with poor health habits generally pay higher premiums because they are more likely to claim sooner. Moreover, if you have a history of diseases such as diabetes, the insurer may levy additional charges on you.
On the other hand, a healthy lifestyle and good medical history can help you get the best rates.
Your Desired Policy Tenure
How long do you want the coverage to last? If you want the cover to run until you retire at the age of 60, your premium will be cheaper. The reason is that the risk for the insurer is lower since the policy will only be in force until you reach 60.
However, if you want to extend the policy until you reach the age of 75 or 80, you will have to pay a slightly higher premium.
Additional Riders
Term plans generally make a lump sum payout upon death. However, they do not cover other events, such as critical illness and accidental disability. Insurers offer additional benefits called “riders” that you can add to your term plan to get extra payout in case of specific events. Some of the most common riders include:
- Critical illness rider: This rider provides a payout if the policyholder is diagnosed with a severe illness, such as cancer or heart disease.
- Accidental disability rider: This rider offers a lump sum payout if the policyholder acquires a disability due to an accident.
Riders are an excellent way to increase your sum assured, and they come at an additional cost.
How to Calculate Term Insurance Premium?
You do not have to estimate your premium manually or worry about the complex calculations. You can use an online term insurance premium calculator to estimate how much you will be charged for a term plan. Here is how the calculator works:
- You provide the calculator with your basic information, such as your age, gender, and whether you are a tobacco user or not.
- You also give the calculator your income and the sum assured you want.
- The calculator also asks you to provide the policy tenure.
- The calculator will then show you the monthly or annual premium you will be charged.
Using a term insurance calculator is the easiest and most affordable way to explore different term plans and choose the best one that suits your family needs and budget. You can use the calculator to compare the monthly or yearly costs of different term plans.
Ways to Get Cheap Term Insurance
- Buy Early: Buying a term plan at a young age is always cheaper.
- Pay Annually: You can save some money by choosing to pay your premium annually.
- Be Healthy: Being healthy and fit can help you enjoy the best rates.
- Be Honest: Always be honest about your health status and lifestyle to avoid claim rejection.
Conclusion
When considering term insurance, it is important to remember that it is not a one-size-fits-all solution. Your life needs dictate your level of cover, and different factors determine the cost of your term plan. Understanding how these factors work can help you choose the best plan that fits your family needs and budget.
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