Well, we all are familiar with what is life insurance and how it secures your family financially. Buying a term insurance policy is relatively easy these days, and many people prefer buying these insurance plans online. The reason is that when you buy a term insurance policy online, you can pay the premium at affordable rates.
Moreover, term insurance is one of the best ways to get a high assured sum. To get optimum benefits (including tax benefits) from term insurance, you need to buy the plan at a very young age – say before 30. However, people often make mistakes while purchasing life insurance policies that do not provide an adequate sum assured.
Why Should You Choose Adequate Sum Assured?
Firstly, you need to know that term insurance premium and sum assured are very well related. In life insurance, the sum assured matters because it is the sum of money that the insured’s family will receive upon the insured’s premature death under the chosen term plan.
Many have a misconception that choosing a high sum assured will lead to a high premium amount. But the truth is that a higher sum assured is not very expensive when you take a term insurance plan. You wouldn’t wish to see your family compromising their lifestyle needs after your death, just because you need to paya higher amount as premium at the current moment.
Factors Affecting Term Insurance Premium
- Sum assured
- Type of plan
- Your age
- Policy tenure
- Riders (if opted)
Sum Assured
Aterm insuranceplan offers a comparatively much higher sum assured than many other life insurance policies at a specific premium. This ensures that your family or dependents are provided with enough money that they don’t have to face any financial hardships in your absence.
For instance, an average sum assured of 1 crore for a term life insurance policy will cost you somewhere around Rs. 10,000. Compared to traditional or whole life insurance endowment policies, the coverage is much higher in a term insurance plan.
With a higher sum assured, a term insurance policy could get you a high tax rebate. The higher the premium, the higher will be the tax benefits for you.
Type of plan
Depending on what type of term insurance policy you choose, your insurance premium amount varies. Generally, traditional life insurance policies tend to be more expensive than term insurance policies.
Riders (if opted)
Life insurance riders are add-ons that allow you to customize the insurance coverage offered under the policy. These riders provide additional benefits and features to your policy, thus making it more useful for you. Most riders are available at an additional premium but are worth the price because of the benefits you get above the base policy.
Your age
When it comes to factors determining the insurance premium, the age of the insured stands on top. That being said, a person at a young age is atlow risk of getting life-threatening diseases. Hence a young person will be paying less amount as premium as compared to someone older.
Therefore, buying a term insurance plan at a young age is highly recommended. On the contrary, the premium amount will be high if you buy a term plan at an older age. This is because, as you age, the chances of getting life-threatening disease or death is high.
Policy tenure
The policy period plays a vital role in determining the term insurance premium. The shorter the tenure is for aconsiderable death benefit, the higher will be its premium. While buying a term plan, it is crucial that you consider various aspects related to zero in on the policy period that is most suitable for your specific needs.
Different insurers
Did you know that different insurers charge different premiums for the similar plans? Well, competition, agent pressure, mortality charges, and provisioning are factors why these plans are charged at different premiums by different insurers.
Also, each insurance company’s underwriting process to assess the risk differs with slight changes and requirements. Based on this assessment, each insurer decides the premium for their insurance plans. Pricing strategy is yet another factor why there is a difference in the premium amount for the same plan.
Often, insurance companies offer a discount on the premium rate payable based on the sum assured and premium payment mode. As discussed earlier, it is crucial to select the right policy to get adequate coverage. In all means, buying a term insurance plan is the best option as they provide high coverage with flexible and affordable premium payment options.
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