Simplifying Life Insurance in India
How to Calculate Life Insurance Premium?
Individuals buy life insurance policies to cover their life from unforeseen incidents like accidents. It ensures financial coverage for their family even in their absence. However, the policyholder must pay a monthly premium to receive the death coverage or sum assured on their life insurance plan.
Premium, or the amount you pay for your policy, varies based on several factors, such as policy type, desired sum assured, age of the policyholder, coverage, etc. Understanding how to calculate the premium for your life insurance plan is vital for making informed decisions about your coverage.
Read on for detailed insights into life insurance premiums, why calculating them is crucial, and how to calculate them.
Table of Contents
How to Calculate Life Insurance Premium?
Here are the steps you can follow while calculating the life insurance premium:
Step 1
First, visit the online life insurance premium calculator webpage.
Step 2
Enter your personal information, such as age, gender, lifestyle choices, health history, occupation, etc.
Step 3
Choose coverage that meets your financial needs, including debts, living costs, and future expenses. A common guideline is 10 to 15 times your annual income.
Step 4
You can pay premiums monthly, quarterly, or annually, with annual payments often offering discounts.
Factors Influencing Life Insurance Premium Calculation
Several key factors influence how life insurance premiums are calculated:
Age
Younger individuals generally enjoy lower premiums because they are statistically less likely to file claims.
Gender
Women usually pay lower premiums than men due to their longer life expectancy.
Health History
A history of severe medical conditions (like heart disease or diabetes) can lead to higher premiums.
Lifestyle Choices
Smokers often face significantly higher premiums compared to non-smokers due to increased health risks.
Occupation
Jobs involving higher risks (like construction or firefighting) may lead to higher premiums.
Coverage Amount
Higher coverage amounts result in higher premiums since the insurer's potential payout increases.
Examples to Illustrate the Life Insurance Premium Calculation
Aditi Paul, a 35-year-old software engineer, wants to purchase a life insurance policy with a sum insured of ₹50,00,000 for 20 years. Based on her age and medical history, the insurer assigns a risk factor of 1.2%.
Calculation: (1.2%×₹50,00,000)/20 = ₹3,000 per year
Aditi must pay a premium of ₹3,000 annually to maintain her life insurance policy.
Key Considerations and Variables While Calculating Life Insurance Premium
When calculating premiums, consider:
How to Lower Your Life Insurance Premiums?
If you plan strategically, lowering the premium amount can be easier. Here’s what to do:
Get an Insurance Policy at a Young Age
As your age increases, the life insurance premium amount also increases, considering the risk factors associated with your life. However, buying life insurance coverage at an early age is comparatively affordable due to high life expectancy. Besides, you can opt for long-term insurance policy to avoid age-related premium increases.
Compare Policies
Comparing the policies of various companies can help analyse their cost, benefits, discounts, loyalty programs, etc., helping you select the one with suitable features and riders.
Select the Right Coverage
Choose your insurance coverage based on your financial goals, debts, and dependent needs. It can help reduce the premium amount as well as protect you from being over-insured.
Maintaining Healthy Lifestyle
Individuals with health-affecting habits like smoking and drinking may need to pay a higher premium, considering the threat to their lives. Thus, maintaining a healthy lifestyle can help reduce your premium amount.
Opt for an Annual Lump Sum Payment
Paying your premium annually, instead of in monthly or quarterly instalments can reduce the insurance cost in the long run. It may seem a burden to pay a huge amount at a time, but it actually saves your overall premium cost with offers and discounts.
Maintaining a Healthy Credit Score
Policyholders with higher credit scores can negotiate with the insurance company to lower their premium amount. Insurance companies consider policyholders with high credit scores as lower-risk customers, so they offer better insurance rates, lowering the premium amount of such customers.
Opt for Medical tests
Medical tests help analyse a policyholder's health risks. Undergoing medical tests while buying an insurance policy can lower the premium amount if the applicant has fewer or zero potential health risks.
Joint Life Policy
In this policy, one can get life coverage for two individuals under the same policy. Paying insurance premiums for two separate policies is way more costly than paying a joint policy premium. So, you can save on insurance costs and get benefits similar to two different plans.
FAQs about Life Insurance Premium Calculation
How is the life insurance premium calculated?
What is the formula used to calculate life insurance premiums?
What factors affect my life insurance premium?
How can I lower my life insurance premium?
Does the life insurance premium amount change during the policy period?
How often do I need to pay my life insurance premium?
What are the methods to pay my life insurance premium?
What happens if I miss a life insurance premium payment?
How does my health history impact my life insurance premium?
How do insurers assess the risk associated with my occupation for life insurance premium calculation?
Are there discounts available that can lower my life insurance premium?
How often can I review or adjust my life insurance premium?
Important Guides Related to Life Insurance
Disclaimer
The information provided on this page is for informational purposes only and is sourced from publicly available resources. It is not intended to serve as professional advice or a recommendation.
All policy details, benefits, coverage, premiums, and other figures mentioned are illustrative and subject to change based on individual requirements, eligibility, product terms, regulatory changes, and other factors. Guaranteed returns, if applicable, are subject to policy terms, conditions, and timely premium payments.
Customers are advised to review the policy documents, terms and conditions, and consult relevant experts (such as financial or tax advisors) before making any decisions. For a detailed disclaimer, please refer to our Life Insurance Disclaimer.
Download Policy Wordings
Click here for Life Insurance Policy Wordings.Disclaimer
- This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
- All the figures reflected in the article are for illustrative purposes. The premium for Coverage that one buys depends on various factors including customer requirements, eligibility, age, demography, insurance provider, product, coverage amount, term and other factors
- Tax Benefits, if applicable depend on the Tax Regime opted by the individual and the applicable tax provision. Please consult your Tax consultant before making any decision.
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