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What is Life Insurance Premium?

Life Insurance Premium is the amount that a life assured/policyholder will pay either regularlyor in a lump sum to buy the life insurance policy. Therefore, it is also called policy premium. Premium rates differ from insurer to insurer. The insurance company generally provides monthly or annual premium amounts for the life insurance plans. 

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In this article, we will discuss in detail what life insurance premiums are and the process to pay it from the comfort of your homes.

What is Life Insurance Premium? 

A life insurance premium is a fixed amount of money to be paid on a periodic basis by the policyholder/life assured to the insurance company in exchange for the coverage that he chooses to purchase. 

Paying the life insurance premium on time ensures your life insurance policy is active, therefore, allowing you to financially protect your family for the long run. Let’s understand this with the help of an example.

Ramesh is a 31 year old non-smoking male, with an annual income of Rs. 12 Lakhs. He bought a term insurance plan of 1 Crore life cover for a 30 years policy term to secure his loved ones’ financial future. He now pays Rs. 948/month as his life insurance premium, and will continue to pay the same amount for 30 years.

Generally, life insurance premium amounts are paid monthly, quarterly, or yearly depending on your requirements. However, you can use the life insurance premium calculator to calculate, based on your savings and income, how much life insurance coverage you will need.

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How To Pay Life Insurance Premium Amount? 

There are a number of options available to pay premiums for your life insurance plan. Generally, policyholders have the option to pay a premium in form of installments on a yearly, bi-yearly, quarterly, and monthly basis. This frequency of paying premiums is referred to as a premium payment mode. 

You can pay the life insurance premiums in both online and offline modes. Let’s first understand how to pay the premiums online.

  • Step 1: You have to visit the official website of the insurer

  • Step 2: Select the premium payment option from menu

  • Step 3: Enter the details, such as your policy number, DoB, etc.

  • Step 4: Pay using your preferred payment mode to complete the process

If you wish to pay the life insurance premium offline, you can visit the branch of the insurer and pay directly to them.

What Happens If You Stop Paying Your Life Insurance Premiums? 

Below mentioned is a list of all that happens if you stop paying your life insurance premiums:

  • Lapse of Coverage: If you stop paying premiums, your policy can lapse, resulting in the loss of life insurance coverage.

  • Grace Period: Most policies offer a grace period during which you can pay overdue premiums to maintain coverage. The duration varies but is typically around 30 days.

  • Policy Revival: Some policies allow you to revive them by paying overdue premiums with interest. Rules vary depending on the insurer and policy type.

  • Reduced Paid-Up Insurance: In some cases, if you've paid premiums for a specific time, you may get reduced coverage without further premium payments.

  • Surrender or Cancel Policy: Alternatively, you can surrender or cancel your policy, but the amount you receive is usually less than the total premiums paid.

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How Do Life Insurance Companies Utilize Life Insurance Premiums?

Life insurance companies use the money they get from life insurance premiums in several ways to make sure they can provide financial help to their customers when needed. Here's how they use those premiums:

  • Claims Payouts: The main purpose of life insurance is to provide money to your loved ones in the event of your unfortunate death. So, a part of the premiums goes toward paying out death claims to the families of policyholders who have passed away.

  • Investments: Insurance companies invest a portion of the premiums they collect. They put this money into various investments like stocks, bonds, and real estate. The returns from these investments help them pay future claims and keep their business running.

  • Operating Costs: Running an insurance company involves various expenses, such as salaries for employees, office rent, and technology. Premiums help cover these day-to-day costs.

  • Reserves: Insurance companies set aside a portion of the premiums as reserves. These reserves act as a safety net to ensure they can meet their financial obligations, especially during tough times or when many claims come in at once.

  • Profits: Insurance companies aim to make a profit too. They use some of the premium money to earn a profit, which keeps their business stable and allows them to grow and provide more policies.

What Are the Factors that Affect the Life Insurance Premiums?

Below mentioned are the factors that affect the life insurance premiums of an individual:

Factor Affecting Life Insurance Premium Rates Factor Affecting Life Insurance Premium Rates
  • Age and Health: Your age and overall health significantly impact your premiums. In India, younger individuals usually pay lower premiums because they're considered less risky than older people.

  • Coverage Amount and Type: The amount of coverage you want and the type of policy you choose also influences your life insurance premiums. Policies that provide more extensive coverage or have investment components tend to be costlier.

  • Lifestyle Choices: Certain lifestyle factors, like smoking, consuming alcohol, or engaging in risky activities, can lead to higher life insurance premiums because they increase the likelihood of health issues.

  • Location: Where you live can influence your life insurance premiums. Factors such as local healthcare costs and crime rates can impact the overall cost of insurance.

  • Gender: Women in India pay lower premiums than men because of the difference in mortality rates between both genders. Since women are considered less risky by insurance companies, their life insurance premiums are lower in comparison to that of men’s.

  • Premium Payment Term: The shorter the premium payment term, the higher the life insurance premium will be. 

Wrapping It Up!

Life insurance premiums are increasing with time due to several factors. Therefore, it is best to buy a life insurance plan as soon as possible to avoid paying higher premiums in the future. With Policybazaar’s help, you can now choose from amongst 15+ insurers of India and buy the one that best suits your preferences and life goals.

FAQ's

  • What happens to the money from life insurance premiums?

    Ans: Life insurance premiums are used for paying claims, investments, covering operating costs, building reserves, and generating profits for the insurance company.
  • Can I get my premiums back if I don't use my life insurance policy?

    Ans: No, premiums are used to maintain coverage, and you won't get them back if you don't make a claim.
  • Why do younger people pay lower life insurance premiums?

    Ans: Younger individuals usually pay lower premiums because they are considered lower risk for insurance companies.
  • How can I lower my life insurance premiums?

    Ans: Maintaining good health, avoiding risky behaviors, and comparing quotes from different insurers can help you find lower premium rates.
  • Can I choose how my life insurance premiums are used?

    Ans: No, insurance companies decide how to allocate premiums based on their financial strategies, which include claims payments, investments, operating costs, and more.
  • How can I find the right life insurance policy for my needs?

    Ans: To find the right policy, consider factors like your age, health, coverage needs, and budget, and shop around for quotes from different insurers to compare options and choose the one that suits you best. You can also visit Policybazaar’s website to compare plans and buy the most ideal one for yourself and your family.
  • What is a life insurance premium calculator, and how can it help me?

    Ans: A life insurance premium calculator is a tool used to estimate the premium of a life insurance policy based on your age, health, coverage amount, and other factors. It helps you get a rough idea of how much you might need to pay for life insurance, allowing you to plan your budget and choose a policy that aligns with your financial goals and needs.
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