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Things Must Know Before Paying Life Insurance Premium

20 June 2022, 10:46 AM

Buying a life insurance plan is important, but paying the premium on time and keeping it active is perhaps even more crucial. This is why you should be regular with your premiums and ensure they are paid on time and your policy never lapses. Life is unpredictable and you never know what may happen to you at which time. Be prepared for the worst and keep your family safe by having a good and active life insurance plan. 
However, before you pay your premium, you need to be aware of a few factors that affect the premium payments in life insurance plans. Read on to know more.

  1. Premium depends on the type of plan you have - 
    The type of plan you have will determine the amount of premium you pay. For instance, a term life insurance plan is inexpensive. So if you have a life cover of INR 20 Lakhs on a term plan, your premium will be lower as compared to the premium of the same cover on an endowment plan. You need to understand your type of life insurance coverage to understand what you are paying.
    Expert Tip: Term insurance plans are the cheapest way to get the highest life insurance coverage.
  2. There are different premium payment terms - 
    You can choose to pay your life insurance premium annually, bi-annually, quarterly or monthly. If you pay the premium annually, the life insurance company generally offers you a discount and your overall premium amount is lower than that of the combined premium paid quarterly or monthly.
    Expert Tip: Sometimes annual plans do offer a discount on premium which must be availed in order to lower your premiums.
  3. The loading component in premium - 
    At times, you, as the policyholder, pose a threat to the life insurance company. If you are considered to have a risky profile, your premium will increase. The risk lies in areas such as a fragile age, advanced age, etc. The extra amount charged is known as loading in life insurance.
    Expert Tip: your life insurance premium might be more if you have a health hazard, like diabetes, obesity, etc. or an occupational risk. So, the premium is directly proportional to the amount of risk there is in your life.
  4. Riders increase the premium - 
    Every insurance company offers riders along with the basic life insurance plans. Riders are add-on covers that offer extra protection. If you opt for riders such as the critical illness rider or the accidental death benefit rider, the premium you pay will go up. This is why you need to analyse your needs and understand the rider sn then choose the riders that are of best use to you. If you feel an existing rider isn't working for you, drop it and get another rider that is better suited for your needs.
    Expert Tip: Premium is directly proportional to the coverage benefits. Since riders increase the coverage benefits, premiums also increase with the addition of riders.
  5. Premium is dependent upon your health and age - The premium you pay is definitely dependent on your age and health. An older person who has medical conditions such as diabetes or hypertension will have to pay a higher premium as compared to a younger and fitter person. Also, lifestyle habits such as smoking and drinking affect the premium. A 30-year-old smoker will have to pay a higher premium than a 30-year-old  non-smoker for the same plan and cover.
    Expert Tip: Premium is directly proportional to your age and health. So, the higher the age, the higher is the premium. Similarly, higher the risk of death (i.e. smoking), higher is the premium.

Note: Life Insurance Plans have a level premium
Since life insurance plans have a level premium, once you start the coverage, your premium doesn't go up, unlike health insurance where the premium is revised every year.

  1. A tax benefit is available on a premium paid - 
    The income tax laws of the country make it favourable for the policyholders by offering them a tax rebate when they pay their life insurance premiums. 
    Expert Tip: As per the rules stated under Section 80 C of the Indian Income Tax Act, there is a tax benefit available up to a maximum amount of INR 1.5 lakhs a year when you pay your life insurance premium in the FY 2020-21. This is a very handy benefit that helps you to save tax in an effective way.
  2.  The premium can be paid online - 
    The life insurance companies have become modern and digital these days. Gone are the times when you had to stand in queues and then physically pay the life insurance premium. Nowadays, you can just go online and pay your life insurance premium instantly. The process is quick, convenient and completely hassle-free. This is an added benefit you get when you buy life insurance from a good and reputed life insurance company in India.
    Expert Tip: Some insurers and products offer a discount in premium for paying it online or through ECS. You can avail this option to lower your premiums without a compromise on the coverage benefits.
  3. For forgotten premiums - 
    If by any chance you forget to pay your life insurance plan, your policy will become inactive. Pay the premium at the earliest. Every life insurance company offers a grace period of 30 days. If you pay the outstanding dues within that time period, your policy will get reinstated quite easily. However, beyond the grace period, you may find it more difficult to reinstate the cover.
    Expert Tip: Any additional service like revival or reinstatement of plans come at an additional cost and there might be underwriting implications as well. So don't let your policy lapse. Pay your premium on time.

As you can see, the premium you pay depends on a number of factors. Also, the way you pay the premium affects the cost and convenience factors. So choose to pay your premium in a suitable way and on time so that your policy is always active and ready to help your loved ones whenever there is a need. 


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