As we all know that the premium is the price paid for purchasing an insurance policy. But while paying the premium it is important to know the several aspects of it like on what basis the discount offered on life insurance premium is determined? What are the different types of life insurance premium? What are the premium payment frequency and what happens if you forget to pay premium? Having a basic knowledge is crucial in order to choose and maintain your life insurance policy.
What is Life insurance Premium?
In simple term the life insurance is described as the contract between the insurance company and the life assured. Moreover, every contract to be enforced under the law must involve a valid consideration. While purchasing the policy the premium is the ultimate consideration that makes the contract complete. The insurance premium is generally illustrated as a form of premium tables by the insurance companies and generally expressed as per thousand rupees of sum assured. According to the policy term and different types of policy, the age of the proposer and the sum assured the premium varies. Depend on the type of policy chosen by the insured the mode of payment of premium is decided. Generally there are four modes of premium payment i.e. yearly, half-yearly, quarterly and monthly.
In advance premium payment the premium is required to be paid in advance and can be paid up to Rs50,000 via cash. Further, in most of the cases the insured have an advantage of paying the premium online as most of the insurance company provide an online premium payment mode that is not only very easy and time saving but it is also hassle free.
Discount offered in Life insurance premium
In life insurance policy there are many companies that offer a discount on the premium rates that are payable on the basis of sum assured and the mode of payment of premium in insurance language these discounts are called as targets. Depending on the mode of the premium payment and the sum assured the discount offered in the life insurance premium and term insurance premium is set.
Rebate for Sum Assured
The higher the sum assured will be the more rebate the insured will get. One of the main reason behind this is because the servicing cost of all policies of same type are almost the same. A greater sum assured means low servicing cost per unit of sum assured. Accordingly, this results to higher benefits and returns as per unit of premium or per unit of sum assured paid for the company.
Periodicity of Premium Rebate
In type of periodic premium payment policies one can simply choose to pay premium on annual basis, half-yearly basis, quarter or monthly basis depending on the cash flow situation of the insured. Nevertheless, the more will be the frequency of premium payment simultaneously the cost of servicing for the company will cost higher (Collecting, processing and administration cost). Also, if the insured pay the premium one at a whole the funds available for investing in investment plans to the company for a much longer time that in monthly mode of payment. Hence, more return can be availed by the company on the premium paid. In case of limited or single premium payment policies, often the discount are already worked into the premium rate as the payment mode is structurally build into the policy.
Discount on Online Payment
You should know that the cost incurred by the company to service your online premium payments is much lower than that for those paid through the offline route. Moreover, the company gains additional savings through commissions that need not be paid out to agents in case the premium payments being made by customers through the online route. Through such savings the insurance companies can greatly improve their bottom line as compared to when they only sold paper policies. Some of these savings may also be passed on to the customers through premium rebates which are often higher in case of online payments sold online as compared to offline payments. .
The insurance can charge an extra premium for people who carry more risk as they suffer from health related issues like diabetes or heart disease and works in risky situation the insurer may charge more not carry any additional risk and standard premium rates are applicable in these case. For the add-on covers while purchasing the insurance an extra premium is charged.
The level premium is termed as the premium charged under a policy remains the same throughout the duration of the contract. In the case of level premium the premium payment is guaranteed and cannot be changed by the company at later date. This type of premium is beneficial for both the insured and the insurer. Therefore, except some term insurance plan in most of the life insurance plans involves the level premium payment. Depending on the type of insurance policy and the insurance company the term insurance policies are with the increasing premiums or level of premiums.
The major advantages of level premium are
- With the increase in the mortality age of the insured the premium charges also increases. It can be possible that the premium paid at the old age is much more than the premium paid in young age. With the level premium one can continue with the coverage at the time of need.
- If the person with good health demise then the insurance company may be left with sub standards life as times goes by.
- It is executively difficult for the insurance company to keep the record of tax and collect varying premiums.
Single premium policies are normally targeted at the individual who have idle money with them and those who comes in the bracket of higher income.
No-payment or late payment Premium
The policy is considered to lapse and goes in loss in case the premium is not paid on the due date. However, the policy terms provide a grace period which gives the insured an additional time period to submit the premium payment. The policy can continue to be alive, if the insured pay the required amount during this grace period. In most of the life insurance plans are the grace period is generally 15 days. While in other mode of payment it is 30 days. In case if the policy lapses, it can be revived and brought back to force by the payment of overdue premiums.
Under income tax act section 80c any amount paid by the insured towards life insurance premium for oneself, spouse or his/her children can claim for the deduction of taxes. With the online emergence of insurance companies one can now check the different plans available online and chose the plan that offers full coverage with less premium.