Things to Keep in Mind Regarding Payment of Life Insurance Premium

Every life insurance contract requires the policyholder to make a single or periodic payment called 'premium'. The kind of policy selected by an individual will determine the payment options available, while premium amounts differ from plan to plan based on the proposer's age, sum assured and policy terms.

Premium Rebates:

Most people are unaware of the fact that discounts are offered on premium payments. The mode of payment and the sum assured are two factors that can help you attain a discount on the premium rate applicable to your life insurance policy. Rebates, as they are known in insurance jargon, are usually offered by most insurers for a sum assured that is higher than a particular limit. The reason for this discount is that the Servicing Cost Per Unit of Sum Assured becomes lower for a policy that is taken out for a higher sum assured, while other similar policies with lower sum assured essentially translate to a higher Servicing Cost Per Unit of Sum Assured.

Rebates are also offered for the mode of premium payment. While the rebate is already incorporated into the premium rate in case of limited and single premium policies, plans with an annual premium payment mode can help in attaining rebates as the Servicing Cost for monthly, quarterly or semi-annual premium policies is relatively higher for the insurer after taking into consideration administrative, collection and processing fees. A single premium payment per year will mean that the insurer will have to incur lower servicing costs, thereby affording you a part of the benefit.

Kinds of Premiums:

  • Extra Premium: Individuals who wish to avail life insurance but carry certain health risks such as heart disease or diabetes, or ply their trade in a hazardous environment, are charged more than others. This additional premium charged in such situations is called Extra Premium.
  • Level Premium: Certain policies ensure that the premium payment does not change until the end of the contract. Level Premium is beneficial to both, the insurance provider as well as the life assured and are generally associated with term plans.
  • Increasing and Decreasing Premium: Premium may increase or decrease for certain life insurance policies. Since the mortality risk of the assured individual rises with each passing year, the cost of insurance incurred by the company also rises annually, thereby resulting in increasing premium. Decreasing premiums, on the other hand, are usually associated in mortgage redemption policies as the premium amount reduces with the reduction in the assured individual's outstanding loan balance.
  • Single Premium: Individuals who fall in the higher income bracket or individuals who possess additional funds are the ideal customers for Single Premium policies. The premium for such policies is paid only once, usually at the time of purchase.

Late Payment and Non-Payment of Premium:

Individuals who fail to make their premium payments on time, or cease making premium payments towards a policy after a period of time, shall not be eligible for its benefits. However, a good number of life insurance policies come with a 'grace period' that usually spans up to 30 days. Policyholders must make their due premium payments within this period, or else the policy will be considered as lapsed. Lapsed policies can be revived by paying the overdue premiums along with the interest rate applicable and other charges, if any, but the final decision regarding the revival of a lapsed policy lies with the insurer, who will carry out the necessary verification to confirm that the customer is in a healthy financial position so as to avoid future defaults on premium payments.

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