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Term Life Insurance Premiums

Term life insurance is a type of insurance product that covers the risk of death of the policyholder for a specific term. This protection comes at a cost known as ‘premiums’ and is payable monthly, quarterly, half-yearly, or yearly. The premiums charged against the desired term insurance coverage are subject to the underwriting criteria of the insurer.

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What Is A Term Life Insurance Premium?

Essentially, a term life insurance premium is the fee charged by the insurer to insure the lives of policyholders for a specific tenure. Given the affordability of premiums charged against term insurance, it is one of the more widely purchased insurance products among the general public.

Term insurance is a contract between the insurer and the insurant that assures financial protection to family members of the latter following his or her death. The insurer offers the sum assured on death to these beneficiaries if the death of the life assured occurs within the specified policy term. In order to be entitled to this benefit amount, the life assured has to pay the due premiums charged against the chosen coverage amount.

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How Are Premiums For Term Life Insurance Determined?

The insurer shall determine the premium based on their underwriting criteria. In the simplest terms, the higher the risk of insuring you, the higher will be the premiums charged. This is because your insurability directly impacts the financial risk being undertaken by the insurer to issue the term life coverage to you.

Traditionally, the premium for term insurance remains level throughout the policy term. The premium amount once decided at the time of policy issuance cannot be changed by the insurer even if the mortality risk of the insured policyholder increases at a later stage. However, in the case of increasing or decreasing term insurance, the premium charged increases or decreases over the policy term in sync with the respective coverage amount.

Premiums payable towards term insurance are determined based on several factors, as discussed in the next section.

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Factors That Affect Premium Rates For Term Life Insurance

The following factors are considered by the insurer in determining the premium rate against your term life cover.

  • Sum Assured - Sum assured is the amount of coverage that a policyholder opts for. This is payable to the family members on the death of the life assured. The higher the coverage, the higher will be the premiums, albeit certain rebates are applicable on choosing a high sum assured.

  • Policy Term - The duration for which you wish to remain covered affects the premium that you would have to pay. If you choose a high term cover of say Rs. 1 Crore, you will be charged an equivalent premium. Now if the policy term is shorter, you would have to pay off the due premiums within that time frame, and therefore, the rate increases. A longer policy term ensures that the premium payments are spread out and are subsequently easier on the pocket.

  • Age of the applicant - The younger you are, the greater is your insurability. Therefore, the premium charged will be lower. As you grow older, your mortality risk increases with your health condition, and so the financial risk to cover you shall also increase.

  • Lifestyle - Your smoking habit, occupation, etc. are key determiners of the premium amount as well. Smokers generally tend to be at a higher risk of developing serious health conditions, hence the premiums are higher for them. Further, certain occupations also make one more prone to accidental injuries and deaths, and therefore, such individuals are charged higher premiums.

  • Medical History - Your existing medical conditions and your family’s medical history are taken into consideration to estimate the premiums. Above a certain age, insurers may ask you to undergo medical examinations.

Important Things To Know About Term Life Insurance Premiums

  1. Premium paying frequency

    Premium payments for term insurance can be done through a single lump sum payment, regular periodical pay, or limited pay for a specific duration. Regular premium payments can be done monthly, quarterly, half-yearly, or annually.

    Note that the more frequently you pay premiums, the more servicing charges you incur. These charges are usually built into the premiums of the policy. Therefore, most often single and limited premium payments come with certain rebates.

  2. Rebates and discounts on premiums

    Most insurers offer discounted premiums on assuring a higher sum of Rs. 25 lakhs and above. The rebates keep on increasing as the sum assured increases. Insurance companies may also offer discounts on the premiums for your term policy if you are a woman or a non-smoker. Further, you can also enjoy discounts on your premiums if you buy an online policy. However, these offers vary across insurers and should not be construed as definitive.

    * All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C apply.

  3. Tax benefit up to 1.5 lakhs on premiums

    The premiums paid towards a term life insurance plan are eligible for tax exemptions under Section 80C of the Income Tax Act of 1961. The maximum annual limit up to which a tax-paying policyholder can claim the aforementioned benefits is Rs. 1.5 Lakhs. Further, note that tax deductions can only be claimed if the yearly premium does not exceed 10% of the sum assured.

    * Tax benefit is subject to changes in tax laws

  4. GST rate on term insurance premiums

    The Goods and Services Tax on term life insurance premiums is levied at the rate of 18%. So, for instance, if you are charged a premium of Rs. 10,000 on your term cover, Rs. 1800 shall be paid towards the GST.

  5. Return of premium policy

    Although term insurance does not generally offer maturity benefits on surviving the policy term, you can claim the total amount of premiums paid in some cases. This feature is available with term life policies with the return of premium (TROP) option. TROP plans are being offered by some insurers as a means to encourage insurance purchase. This feature acts as a savings avenue, ensuring that the money you pay for your cover does not go to waste if you survive the policy term.

  6. Additional rider premiums

    Along with the base cover under term insurance plans, you can avail of extra protection against accidental death, disability, critical illnesses, etc. through riders. These are add-on covers that can be added to the base policy for enhanced coverage. These riders are available at extra premiums on top of the premium charged for the base policy.

About Term Insurance Premium Calculator

Term insurance premium calculator is an online tool that lets users calculate the premiums chargeable against their desired term coverage. Premium calculators are featured on every insurer’s website to enable buyers to estimate the premiums before purchase. Advantages of using term life insurance premium calculators are:

  • This tool helps in financial planning and determining if the policy is within one’s budget or not.

  • The tool can be used to compare the premiums of different term plans and choose one that best suits the needs of the buyers.

  • Premium calculators can be customized with desired features as many times as one wants to get to optimal coverage at the desired premium rate.

  • The tool eliminates the involvement of third-party distributors, which otherwise may result in misselling and miscommunication.

  • Term insurance premium calculators are available for free and can be availed from the comfort of one’s home.

How To Calculate Term Life Insurance Premiums Using Premium Calculators?

Here is a step-by-step guide on using term life insurance premium calculators:

  1. Enter your personal information such as your date of birth, annual income, gender, contact details, etc.

  2. Enter the desired sum assured amount after carefully assessing the future needs of your family in your absence.

  3. Enter the policy term, premium paying term, riders to get accurate estimates.

  4. Compare the plans that are recommended per your entries. If you aren’t satisfied with the premiums and find it to be higher than your expectations, you can tweak some of the features to get personalized results.

How To Pay Premiums?

Premiums are generally paid as per the premium paying term chosen by the policyholder. Premium paying term signifies the duration for which the premiums are to be paid to keep the policy in force. Based on this duration, premium payments are of three types, viz. Single Pay, Limited Pay, and Regular Pay.

Single Pay - This option requires policyholders to pay a one-time lump sum premium amount.

Limited Pay - This option requires policyholders to pay premiums for a specific duration within the policy term. The premium paying term in this option is less than the policy term.

Regular Pay - This option requires policyholders to pay premiums throughout the policy term. The premium paying term is the same as the policy term.

Premium Payment Modes

Now, premiums for term insurance can either be paid online or offline. The following are the modes of premium payments available across each option.

Online Premium Payment Modes

  • Internet Banking

  • Credit / Debit Cards

  • UPI, PayTM

  • ECS

Offline Premium Payment

Premiums against your term life insurance policy can be paid offline by visiting the branch office and paying through cash, cheque, or demand drafts.

What Happens On Non-Payment Or Late Payment of Premiums?

In case you forget to pay the premium due for payment, you are given a grace period of one month from the date of the first unpaid premium. During the grace period, the policy remains active. However, on the expiry of this period, the policy benefits shall lapse on the continued non-payment of premiums. Following this, the insurance company is not liable to entertain claims arising out of the death of the life assured. It is important to note that the policy can be revived within 5 years from the date of the last unpaid premium. You will have to pay the unpaid premium along with an interest charged on the late payment.


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