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LIFE INSURANCE

Things You must know before Paying Life Insurance Premium

Jagrity Sharma Jagrity Sharma 28 March 2019
5.0 (6 votes)

Buying a Life Insurance Policy is a smart investment and here is a complete guide to help you know everything related to paying the life insurance premium.

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Possessing a Life Insurance policy is one of the most important investments in times like today. Now-a-days various leading insurance companies and online insurance aggregators offer a wide variety of life insurance policies to customers and these policies are designed to cater to the future financial needs of the customers. The best way to choose the most beneficial and apt life insurance policy is by overlooking the policy benefits and the premium amount. Thus, it is important to choose the life insurance plan that meets all the future financial needs of customers at an affordable life insurance premium amount.

What is Life Insurance premium?

A Life insurance policy is a contract between the insurance provider and the life assured. Life Insurance premium is defined as the fixed amount paid by the life assured at regular intervals or limited period or just once to the insurance company for the sum assured (opted by the life insured at the time of buying insurance policy). This life insurance premium is dependent on various factors like life insurance plan opted, the age of the life assured, sum assured opted, premium payment terms and mode. Let us now know the important things you as customers must know before paying the life insurance premium of their life insurance policy.

  • Advance payment of Life Insurance Premium: While buying a life insurance policy, the most important thing that the buyer must note is that the premium of the life insurance policy is to be paid in advance. The insurance policy is a contract between the buyer i.e. the life insured and the insurance provider for the payment of sum assured to the nominee after the demise of the former (life assured). For availing this contract, the life assured has to make fixed periodic payments in advance. These advance payments of the life insurance premium are to be done as per the premium payment option chosen by the life assured.
  • Discount can be availed on Life Insurance Premium: Life insurance companies often offer discounts on the life insurance premiums. The policyholder can avail discounts on the life insurance premium amounts based upon various factors like mode of premium payment, sum assured of the life insurance policy etc. The life insurance premium amount is defined by the premium rates as per the sum assured and mode of premium payment opted by the life insured. The discount on life insurance premium is usually offered on the premium rates applicable to the sum assured.
  • Avail rebates on the life insurance premium: A rebate is a form of discount offered by the insurance provider on the life insurance premium. The rebate is offered to attract the customers to choose an annual frequency of premium payment and/or pay the life insurance premium via the online channel. Choosing lower periodicity for life insurance premium payment and paying life insurance premium online results in lowering servicing cost of the life insurance provider. Servicing cost constitutes administrative cost, processing cost, etc. associated with collection of premium of the life insurance policy. When a life assured chooses single premium payment mode or annual premium payment mode under such scenarios, the company has to bear less servicing cost. Such savings are then diverted by the insurance provider to the customers by offering rebates. Similarly, when payment of the life insurance premium is done via online channel, this benefit is then shared by the insurance company in form of rebates. Thus, choosing a low frequency of premium payment mode and/or paying the life insurance premium using online channel of Life Insurance Company can avail rebates on their life insurance premiums.
  • Tax benefit is allowed on life insurance premium: The life insurance premium paid by the customers of both private and public sector life insurance companies are eligible to avail the tax benefit offered under the life insurance policy. The policyholder can include all the life insurance premium amounts to avail the tax benefit under Section 80C of the Income Tax Act, 1961. Kindly note, that the tax benefit can be claimed only for the life insurance premium payment for the policies in the name of self, spouse or their children. Thus, tax benefit can be claimed by the policyholder for the payment of life insurance premium.
  • A Grace period is offered for payment of life insurance premium: Grace period is an additional period offered by the insurance company to the policyholder for the payment of the life insurance premium. A grace period is a type of benefit offered by the insurance company to encourage the renewal or payment of life insurance premium by the policyholder because if the payment of premium is not done, the life insurance policy stands lapsed and all the benefits are lost. So, in order to avoid the loss of life insurance policy benefits, the insurance company usually offers for a ‘Grace Period’ in which the policyholder has to pay only the life insurance premium without any late payment charges or penalty. Usually, for term insurance policies and regular life insurance policies, having a monthly mode of premium payment offers a grace period of 15 days, while a regular life insurance policy having Annual, Quarterly or Half-Yearly mode of premium payment usually offer a grace period of ‘one’ month i.e. not less than 30 days.
  • The fluctuating premium amount: The Life insurance premium amount is derived and based on various factors like the age of the buyer, sum assured opted and the risk associated with the policy etc. Depending on these factors, the premium amount of the life insurance policy is bound to fluctuate. For example: the premium amount for a normal buyer and the premium amount for buyer having a heart condition will vary as the risk associated with the later is much more. So in cases where there is an increased mortality rate, the life insurance premium amount shall be higher. However, in the case of Mortgage redemption Insurance Policy, the life insurance premium amount might decrease. The reason for decreasing premium amount is that the mortgage redemption insurance policy is designed to cover the unpaid housing loan amount and offer financial protection to family members of the home loan borrowers in case of untimely death of the life insured.

Thus, in this manner, the aforementioned are the most important factors that you must know before paying the life insurance premium and avail the most appropriate benefits at affordable premium rates. Life Insurance Premium Calculator is one tool that will help you in availing the best insurance plan by comparing various plans and their benefits offered by different insurance companies.

Recommended Read: Factors that Determine your Life Insurance Premium

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5.0 (6 votes)
Jagrity Sharma
Written by Jagrity Sharma
A bibliophile who hates alliterations, but loves cream, comics and content immensely! On another note, a content marketer who leverages the power of words to explain...almost anything!