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When you buy a term insurance policy, one of the most important aspects you’ll come across is the premium. A premium is the amount you pay to the insurance company to keep your policy active. In exchange, the insurer provides financial protection to your family in case of your untimely death. Understanding how premiums work is crucial because it helps you choose the right policy that fits your budget and provides adequate coverage.
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Let us take a look at what premiums are in term insurance, how they are calculated, the different payment options, and the factors that influence the premium amount.
A premium is the fixed amount you pay to the insurance company to maintain your term insurance policy. These payments can be made regularly, such as monthly, quarterly, or yearly, or as a one-time payment for the entire policy term. As long as you keep paying the premiums, your policy will remain active, and your family will receive the death benefit if something happens to you during the policy period. For example, if you have a term insurance policy with a sum assured of ₹50 lakhs, and you’re paying a yearly premium of ₹10,000, the insurer will pay ₹50 lakhs to your family in case of your death during the policy term, provided all premiums have been paid.
Term Plans
There are several ways to pay term insurance premiums, giving you flexibility based on your financial situation. Here are the common premium payment modes in term insurance:
Monthly Premium: You pay the premium every month. This is a convenient option for salaried individuals who prefer spreading the cost over smaller, regular payments.
Quarterly Premium: You pay the premium every three months. This option balances affordability and fewer payment intervals.
Half-Yearly Premium: The premium is paid every six months. This option is suitable for those who want fewer payments per year but still prefer a periodic mode.
Annual Premium: You pay the entire premium once a year as an annualised premium. It’s the most cost-effective payment mode because insurers often offer discounts for yearly payments.
There are different premium payment terms that determine how long you need to pay the life insurance premiums.
Regular Premium: You pay the premiums throughout the entire policy term. For example, if your policy is for 20 years, you’ll pay the premium every year for 20 years.
Limited Premium: You pay the premium for a limited period, which is shorter than the policy term. For instance, you might pay premiums for 10 years, but the policy will provide coverage for 20 years. This option is great for people who want to finish payments early but still enjoy long-term coverage.
Single Premium: You pay a lump sum amount upfront for the entire policy term. Once paid, you don’t need to worry about future premium payments. This is suitable for those with the ability to pay a large amount at once.
Several factors influence the term insurance premium amount you need to pay for your policy. Before buying term insurance, it is suggested that you check the premiums applicable to you using the term insurance calculator. Here are the key factors:
Age: Younger individuals generally pay lower premiums because they are considered less risky to insure. As you get older, the premium increases.
Health: Your current health condition plays a significant role in determining your premium. If you have pre-existing medical conditions or a history of serious illnesses, your premiums may be higher.
Lifestyle: Smoking, drinking, or having a high-risk occupation can result in higher premiums. Non-smokers and individuals with healthier lifestyles tend to pay less.
Policy Term and Coverage Amount: The longer the policy term and the higher the sum assured, the more you’ll need to pay in premiums. A ₹1 crore policy will have a higher premium than a ₹50 lakh policy.
Gender: In some cases, women may pay lower premiums than men because statistically, women tend to live longer. You can check the difference in premiums for term insurance for women and men online.
Riders or Add-Ons: Adding riders like accidental death or critical illness coverage can increase the premium since these provide additional benefits.
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Paying your term insurance premiums on time ensures that the term insurance policy lapse does not occur. Here’s why timely premium payments are important:
Continuous Coverage: As long as you pay your premiums, your family is protected under the policy. Missing a premium payment can lead to a lapse in coverage, meaning your insurer will not pay out in case of your death.
Grace Period: Most insurers offer a grace period (typically 15 to 30 days) after the due date to make a late payment without penalty. If you miss this period, the policy may lapse, and reinstating it can be difficult or may require additional fees.
Financial Security: Timely payment ensures that your loved ones will receive the financial support they need in case of your absence.
Choosing the right premium option depends on your financial situation and personal preferences. Here’s a simple guide to help you decide:
For Regular Income: If you have a steady income, opting for monthly or annual premium payments may suit you best.
For Long-Term Security: If you want to complete your payments early, go for a limited premium option.
For One-Time Payment: If you have a large amount saved up, single premium could be a good option to avoid future payments.
Always assess your budget and financial goals before deciding on the premium mode and payment term.
If you are planning to pay the premium of a new term insurance policy, here is how you can buy and pay the first term insurance premium via Policybazaar:
Step 1: Visit the term insurance page of Policybazaar
Step 2: Fill in your name, gender, DOB, and contact information
Step 3: Answer questions about smoking habits, occupation type, annual income, and educational qualifications
Step 4: Choose the best term insurance plan and proceed to pay the first premium
Understanding premiums is a key part of choosing the right term insurance policy. By knowing how premium modes and payment terms work and what factors affect your premium amount, you can make informed decisions that best suit your financial situation. Whether you prefer the flexibility of regular payments or the convenience of a single premium, term insurance offers a range of options to help you protect your family’s future. Always compare plans and choose the one that balances affordability and coverage to meet your long-term needs.
†Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in
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