In a nutshell, life insurance policies offer monetary benefits to the policyholders’ dependents in case of their untimely demise. This is however only a facet of life insurance policies, as these policies also double as endowment funds, investment and savings instruments, pension funds etc. And to top it all off, you also receive tax benefits on premiums paid toward a life insurance policy. Life insurance policies are designed to effectively provide financial protection for your and your dependents’ futures.
Life Insurance Premium
Life insurance premium is the recurring or one-time payment you make towards your life insurance policy. A life insurance policy is valid only if your pay the premiums on time and according to the insurer’s guidelines. In general, you have the option to choose the frequency of premium payments such as monthly, quarterly, half-yearly, yearly, or single premium. A factor of this premium is paid out as sum assured when the benefits of the policy get activated.
The premium for life insurance policies varies according to chosen plans as well as the credentials of the applicant. Usually, a younger, healthier individual will likely be quoted lower premium than a person touching his/her 50s. Similarly, a non-smoker will get preferential premium rates whereas a smoker is likely to be quoted a higher amount.
There are various variables that play a part in determining your premium amount and making your own calculations can only take you so far. This is where life insurance premium calculators come into play.
Life Insurance Premium Calculator
A life insurance premium calculator is a tool that gives you an estimated amount of premium according to your chosen policy and technicalities such as tenure, age, sum assured, premium frequency etc. These calculators are available from the official insurance providers for their exclusive list of products. For instance, the Life Insurance Corporation of India (LIC) has its own premium calculator for life insurance policies. Typically, a life insurance premium calculator includes the following fields where information has to be provided by you:
- Plan name
- Age of applicant
- Sum assured
- Premium frequency
- Riders, if any
The whole form takes less than a minute to fill up, and once you have input all the required data and preferences, an estimated figure of premium will be displayed as result. The result is an estimate as the insurer may go for further details about your background that can affect the premium calculations.
Sample Life Insurance Premium Calculation
Life insurance premium calculations are complicated and can’t be done by prospective customers on their own due to the numerous underlying variables. A premium calculator is your best bet in this scenario. Let’s take the example of LIC premium calculator to illustrate premium calculations.
The calculator has 4-5 fields depending on the selected plan. For this illustration, we will select the New Endowment Plan that has the highest number of fields including:
- Plan type: New Endowment Plan
- Age: 38 years
- Term: 20 years
- Sum assured: Rs.10 lacs
- Accident Benefit (Rider): Yes/selected*
*The Accident Benefit rider provides additional cover for accidental death on top of the base insurance plan, by adding a small amount of premium on the base premium. Other insurers may or may not provide the option for adding riders.
The results of this calculation are as follows:
- Yearly premium: Rs.49,940
- Half yearly premium: Rs.25,235
- Quarterly premium: Rs.12,750
- Monthly premium: Rs.4,250
The premium figures are shown in four different varieties. Typically, yearly premiums will cost you less in the long run than opting for the more frequent half-yearly, quarterly, and monthly options.
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