How much premium to pay for term insurance?

Ever since the idea of exchange of commodities took birth, people have engaged to pay something in favor of goods or services used. Long before money was introduced, people used the barter system as an old exchange of money. But as soon as currencies came into effect, people started shelling money to purchase the services or products. Similarly, for term life insurance people paid a premium to get the cover.

Term Life Insurance Premium is quite affordable for people to buy financial security cover for the dependents in the family.

Let us see what you get in term plan cover and what is the term plan premium?

Term Insurance and Term Plan Premium.

 A term plan provides any individual life cover after paying the term plan premium but for a specific period of time.  Though the policy does not offer any maturity benefit, it is just a matter of investment to create financial cushioning for the family members.

Term plan premium is the cost you pay to avail the benefit of the cover. As soon as you pay the premium, the cover gets into effect till the end of the policy term or the death of the policyholder, whichever is earlier.

Let us understand this with an example. Raman, aged 36 years, had an annual income of Rs.10 lakhs. He purchased the Level Term Assurance Plan for Rs.1 crore for a policy term of 24 years. Total premium payable for Raman under regular pay is Rs.907/- per month. Before paying the premium, Raman explored more about the product and thought that he should buy a complete safety plan with more riders.

When you add benefits to the policy or prefer to have a different type of cover, it comes with additional costs. Raman considered some of the covers and then the premium payable amounted to Rs.

Let us see how the premium changes when Raman chooses the type of cover or picks the additional covers (Riders). He thought of buying an Increasing Term Assurance Plan with the sum assured increase rate as 10%. Let us see the effect on premium after the change in the type of the term insurance.

This explains that when you wish to increase the scope of the cover in any way, you need to pay an extra premium for it.

Similarly, the premium gets an impact when you opt for Return of Premium cover. It is the cover in which you get back all the premiums paid for the entire term to get the life cover of Rs.1 crore. The premium will be returned if you survive the policy term. The final premium which we will return will have no component of modal premiums, applicable taxes, any rider premiums and underwriting extras. These will be deducted before making the final return. Moving ahead, let us see how the premium will change in comparison to that of the premium paid under simple Level Term Assurance Cover.

The premium under different types of term plans will vary depending on the cover limits and the riders opted. The component of life insurance premium in life cover you seek varies due to different factors. Let us look at those one by one.

Factors that affect the Term Insurance Premium.

Different factors that affect the term insurance premium include:

• Sum Assured: The amount of your term insurance premium is proportional to the quantity of your sum assured. You must ensure that you select the appropriate amount. As a rule of thumb, you should choose coverage that is at least ten times your annual salary. But your sum assured amount should be at least 15 times your income if you have more dependents or responsibilities. If you have any debts or loans, check sure the term plan payout will help you and your family pay them off.
• Policy Term: When purchasing term insurance, the length of the policy will have a considerable impact on the term insurance premium you pay. Longer-term term plans will have cheaper rates.
• Type of Cover: The type of cover you choose for a term plan will also affect the insurance premium. Better the coverage you look for, more will be the premium.
• Lifestyle Habits: Your premium amount may be affected by your bad habits. Your insurance provider will charge you a higher rate if you smoke or drink alcohol.
• Health History: If you carry a family history of diseases, it is better you disclose the same to the life insurer. Those who have higher chances of procuring illness will have to pay a higher premium.
• Riders: At times, when the basic cover appears insufficient to the policyholders, they prefer to buy riders. It helps them to expand the coverage after paying the additional premium. Let us see the effect of riders, in continuation to the above example where Raman had purchased the Level Term Assurance.

This is an example of how basic premium gets impacted after choosing the riders.

Conclusion:

Term plan is a basic necessity for the individuals who have big financial goals in life but who lack securities. They have the option to pay the premiums and get a term plan at least to create a financial base for the dependent family members. The amount of money you pay to purchase the cover is premium. In simple words, it is an assurance from the insurance company to protect you against odds. For more details on term insurance, you can refer to the link.