You can look at life insurance premiums as a fuel that drives your insurance coverage, ensuring your financial coverage remains in action for a prefixed period and safeguarding your beneficiaries. While a term plan or a whole life insurance plan would offer you lifelong protection, it is important to pay your premium on time to retain the protection. This is because the premium serves as the basis of your contract with the insurer, wherein, you pay them a predetermined amount periodically in exchange for financial protection against several circumstances that are covered under the plan. Since premium influences aspects of your coverage, it is important to know more about it and what impacts it.
Life Insurance Premium Frequency
You will notice that most common insurance plans come with monthly premium options. However, you will also find insurers who allow quarterly, semi-annual, or annual payment options. Based on your convenience and budget, you can pick a premium payment schedule.
Besides the standard, in whole-life policies, you may come across the concept of a limited-pay life insurance option. This particular payment option will enable you to accelerate your life insurance premium payment schedule. In other words, it will allow you to pay off the protection plan sooner. However, such an arrangement would not necessarily impact your coverage, which will continue to remain active until the promised term. Notably, the quick pay off schedule would lead to significantly higher premiums. This setup could prove beneficial for individuals who obtain insurance a couple of years before their retirement, easing their financial obligations while offering them security.
How’s Life Insurance Premium Determined?
The cost of insurance premiums tends to vary among applicants. This means you could end up paying a different premium than your peers. This is because several factors tend to influence insurance premiums and insurance providers weigh them carefully to determine suitable premium amounts.
Individuals with certain health conditions or lifestyle conditions are deemed riskier. To offset this high-risk quotient, insurers charge a higher premium for standard coverage. For the same reason, you will find individuals to avail of the same coverage at lower premiums because of the low risk quotient associated with them.
Your type of life insurance policy would also influence your premium, based on your age. This is because you may survive the policy term, in which case your insurance company won’t have to pay you a claim, helping them save money.
Regardless, the following factors tend to influence life insurance policy premiums significantly.
- Coverage types
You may choose between a term life insurance plan or a whole life insurance plan. As mentioned term policies cost as they extend coverage only for a specific term and will not pay any survival benefit.
This would be best suited for you if you are looking for protection for a given period of time.
On the other hand, whole life insurance offers protection for your entire life, as long as you pay the premiums on time. The increased degree of associated risks makes this type of plan more expensive compared to term plans, as there is room for eventual payout.
- Age
The young in age you are the more likely you are to get a high cover at a relatively lower premium than older individuals. Premiums are computed mostly on the basis of one’s life expectancy and factors that put the same at risk. Hence, younger individuals are more likely to be at an advantage. You can use a term life insurance premium calculator to understand how age can influence your insurance premium. To make the most of this gap, it is recommended to plan insurance from an early age, preferably when you begin your career.
Gender
Studies state that on an average women live longer than men, making them less risky for insurers. So you may find better insurance premium options for female applicants than male applicants. However, other factors such as age and existing health conditions would also influence the premium amount.
- Height and weight
These two also play a crucial role in determining insurance premiums. You will see that some insurance companies ask for height and weight to assess insurance applications. While being overweight may not automatically impact your premium, but they may influence it to some degree. Your choice of insurer may ask you to share your BMI details. They typically use the detail to gauge overall health condition by comparing the data to their build chart. Usually, BMIs below 18.5 are categorised as underweight, while between 18.5-24.9 may be deemed healthy weight. On the other hand, BMI between 25-29.9 is categorised as overweight whereas those 30 and above are categorised as obese. This classification could influence your premium computation.
- Health condition
When you seek a life insurance policy, you will notice that most insurers ask you to submit medical records. By analysing your medical records they ensure that the information you have shared on your policy form is correct. Additionally, declaration of pre-existing diseases such as diabetes, cholesterol, and hypertension, and family medical history will enable them to gauge your risk quotient. It is important to mention all required information correctly. This is because based on the information you share insurers compute the suitable cover and premium amount. If later on during claim verification they find discrepancy in information or instances of non disclosure of health issues they can lower claim settlement amount or reject the plea altogether.
- Riders benefits
Rider benefits are add-ons or additional benefits that cover specific risks or concerns. They are designed to help increase coverage and customize it per one’s needs and requirements. For instance, say, if you think you should get a critical illness cover but do not want to get a standalone policy, a critical illness rider would be a suitable solution. You can easily add it to your existing base plan and increase its scope. While it increases protection, it also increases your premium amount. Today, you can explore riders such as premium waiver rider, disability illness rider, critical illness rider, accidental death benefit, or child benefit, based on your need. However, it is recommended that you include only those riders that you actually need, as adding multiple riders to your policy will increase your premium.
These factors tend to increase insurance premium amounts, impacting your payment capacity. Hence, make sure to understand their impact more closely to plan suitable strategies.
