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Modified 17 October 2016
A common myth surrounding insurance policies is that higher coverage translates to a proportionate increase in premiums. However, this is not true – higher covers are not directly proportional to higher premiums and just a few simple steps could help you keep your insurance premiums well within your control.
Explained below are some tips on how you can lower the premium on your term insurance policies.
To arrive at the exact premium for a term insurance policy, insurance companies consider various factors. While some of these factors are within our control, some are not. By taking charge of the factors within your control, your term insurance policy coverage can remain high without a subsequent increase in the premium, as you would qualify as a relatively ‘risk free’ customer for the insurance company.
Here are some of these ‘premium influencing’ factors that are well within your control
Your overall, general health is a major factor that determines your mortality risk and consequently your term insurance policy’s premium. A person suffering from major ailments like hypertension, blood pressure, cholesterol, etc. is at a higher risk of premature death than someone without major health issues. It is therefore only natural for the insurance company to charge a higher premium for a person suffering from serious health disorders.
Obesity, a major cause of several health problems, is another reason why your insurance company may raise your premium.
All insurance companies do a thorough check about the policy applicant’s health conditions while issuing a term policy, as this is a crucial determinant of the chargeable premium. Additionally, almost all insurers insist that the policy applicant must go through a complete medical examination, especially when the applicant has crossed a certain age. Some insurers may even have this medical test mandate for young applicants.
It is important to note that a complete medical examination would be required whenever a very high coverage is asked for, regardless of how old the policy applicant is.
Excessive drinking and/or smoking or chewing tobacco adversely affects your health, elevating your mortality risk. Insurance companies therefore ask prospective policyholders about these habits before evaluating how much premium should be charged for his/her term policy. If you are smoker, the premium for your term insurance policy would be way higher than a non-smoker. The same logic applies if you drink alcohol excessively.
For policyholders holding risky professions such as firefighting, mining, deep sea diving, skydiving, bomb demolition and such similar occupations, the insurance premium is usually a lot higher than those who have regular office jobs. Certain insurers may even refuse to insure those involved in highly risky professions. Therefore, the riskier and dangerous your profession, higher is your mortality risk and higher the risk you pose for the insurance company, as a result of which your premium will be higher.
Policy Value and Tenure
A higher life cover/sum assured translates to a higher risk for the insurance company in the unfortunate event that the policyholder passes away while the policy is in force. Similarly, longer the tenure of the policy, higher will be the premium, because the insurance company is covering the risk of the policyholder’s death for a longer period.
If you see that the insurance company is quoting a high premium for your policy, consider lowering one of these factors so that the premium also becomes lower.
Premium Payment Mode
Insurance companies usually offer policyholders a choice for premium payment frequency – it could be a one-time payment, yearly, bi-yearly, quarterly and monthly. The total premium outgo is less if you opt for the one-time payment or an annual payment compared to frequent payments such as monthly modes. This is because in case of one-time or annual premium payments, the insurance company saves on administrative costs and also gets a lump sum amount in advance for the full year, as opposed to the quarterly or monthly payment options. Therefore, the former option will mean lower total outgo for you.
Riders offer additional benefits on term policies and they come at an extra cost, meaning higher premium, and higher policy cost. It is therefore advisable to evaluate the actual need for a rider before purchasing it.
Mode of Policy Purchase
Premiums charged on term policies purchased online are usually lower than what you would pay for the same policy purchased through an agent or some other intermediary, i.e. offline. The reason for discounted premiums on online sales is because it helps insurance companies eliminate agent commissions, administrative and distribution costs.
Of course, the decision to buy a policy online or offline will depend on the extent of customised advice you require in the process of deciding the policy most suited to your needs.
Factors Beyond Your Control that Influence Premiums
Age: Older applicants are charged higher premiums because mortality risks and the tendency to fall ill increase with progressing age.
Gender: Some studies say that women generally tend to live longer than men. Hence, other things being equal, women are mostly charged lower premiums than men of the same age for the same policy.
Genetic Predisposition: If you are genetically predisposed to major ailments like heart problems, diabetes, blood pressure, etc. then it is likely that your term insurance premium will be higher.
The final extent to which each factor will affect your term insurance premium will vary as per each insurer’s rating and underwriting policies. It is best to compare quotes from different insurance companies and also compare different insurance companies based on their claims settlement ratio, customer service records, reputation, policy coverage, etc.
Over to You!
Simply follow the aforementioned advice in order to lower your term insurance premiums. While you can hardly do anything to take care of factors beyond your control, you can easily take care of general factors including mode of payment, policy value and tenure.
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