All You Needed to Know About Insurance Premiums

Buying life insurance requires you to be thorough with insurance lingo. Of the multiple life insurance jargons and terms you will come across while buying insurance, one will stand out—‘insurance premiums’. In this blog, we will discuss insurance premiums and why they are important.   

Simply put, an insurance premium is the amount you pay your insurance company to keep your policy active. It is very much like an EMI that you would pay for a loan. However, with your an insurance premiums, you are paying for your peace of mind, knowing that your loved ones will be financially protected if something happens to you. Whether you are looking to buy life insurance online or offline, understanding how insurance premiums work and what factors influence them can help you make smarter choices about your coverage.

What is Premium in a Life Insurance Policy?

Premium is the regular payment you make to keep your life insurance policy active. It’s like a subscription fee you pay for your favourite OTT channel. Whether you choose to pay monthly, quarterly, or annually, the premium amount in insurance is calculated based on factors like your age, health, lifestyle, and the coverage amount you select. Paying your premium on time ensures that your policy remains in force, so your beneficiaries will receive the financial support they need when it’s needed most.

How Does Life Insurance Premium Work?

To understand how insurance premiums work, we need to know how life insurance works. When you apply for life insurance, the insurer assesses your application based on various personal factors such as your health, age, and occupation. If you have any health issues such as high blood pressure or diabetes or you are smoker, there is a higher risk to your life, which means you have to pay a higher premium to get a life cover.

Once your premium is set, you’ll need to pay it regularly to keep your policy active. If you miss a payment, your policy could lapse, meaning you’d lose the coverage you’ve been paying for. It’s a straightforward system—keep up with your premiums, and your coverage stays intact.

How is the Insurance Premium Calculated?

Insurance companies use a variety of factors to determine how much you’ll pay. Here’s a closer look:

• Age: The younger you are, the lower your premium. Younger individuals are generally healthier, presenting less risk to insurers.
• Residential Location: Where you live can impact your premium. For instance, living in a high-risk area prone to natural disasters may increase your premium.
• Occupation: Your job can significantly influence your premium. High-risk professions, like construction or mining, often lead to higher premiums due to the increased likelihood of injury or death.
• Medical History: A history of medical conditions can increase your premium. Insurers assess your health history to determine the risk of future claims.
• Lifestyle and Other Habits: Healthy lifestyle habits can lower your premiums, while risky behaviours, such as smoking, or excessive drinking, or exreme sports can raise them.
• Global Travel History: Frequent travel to high-risk countries may result in higher premiums, as insurers view this as an increased risk.
• Height and Weight: Insurers consider your Body Mass Index (BMI) when calculating premiums. Higher BMI levels can lead to higher premiums due to associated health risks.
• Likelihood of Claims: If your profile suggests a higher likelihood of making a claim, your premium will reflect that risk.
• Income Level: While income doesn’t directly impact your premium, it does affect the amount of coverage you can afford and, therefore, the premium you’ll pay.
• Marital Status and Dependents: Married individuals with dependents might see different premium rates due to the financial responsibilities they carry.
• Gender: Statistically, women tend to live longer than men, which can result in lower premiums for female policyholders.
• Loans and Liabilities: Having significant financial liabilities may affect your premium, as it increases the insurer’s risk if a claim is made.
• Sum Assured Amount: The higher the coverage amount you choose, the higher your premium will be. This ensures that the insurer can meet the potential payout.
• Policy Term and Premium Payment Term: The length of your policy term and how frequently you choose to pay your premiums (monthly, quarterly, annually) also influence the cost.

What Factors Affect Your Insurance Premium?

When it comes to your insurance premium, several things can impact how much you’ll pay. Let’s break it down in simple terms:

• Type of Insurance Coverage: The more coverage you choose, the higher your premium will be. If you go for basic coverage, you’ll usually pay less, but if you want more protection, expect the cost to go up.
• Amount of Coverage & Past Claims: The amount of coverage you select plays a big role in the cost of your premium. If you’ve made many claims in the past, your premium might also be higher because insurers see you as more of a risk.
• Insurance History: If you have a good insurance history—meaning no frequent claims or gaps in coverage—insurers might reward you with lower premiums. On the other hand, a history full of claims can increase your costs.
• Personal Details: Your age, location, marital status, lifestyle, medical history, and even your driving record can influence your premium. Insurers look at these factors to assess how risky it is to cover you.

What Do Insurers Do With the Premiums?

You might wonder what happens to the money you pay as premiums. Here’s a quick rundown:

• Claims Payouts: A part of premiums goes toward paying out claims to policyholders.
• Operational Costs: Running an insurance company isn’t cheap—premiums help cover these costs.
• Investments: Insurers invest premiums in financial assets to generate returns, which helps maintain the company’s stability.

Wrapping It Up

Understanding what is premium in insurance is key to choosing the right life insurance policy. Premiums are more than just payments—they’re the foundation of your coverage, ensuring that your policy remains active and your loved ones are protected. By considering the factors that influence premium costs and choosing a policy that aligns with your financial goals, you can secure the peace of mind that comes with knowing your future is protected.

Frequently Asked Questions

Can I Make A Claim During the Grace Period?

Yes, claims can be made during the grace period, but if the premium isn’t paid by the end of this period, the policy may lapse.

What is the 'Waiver of Premium Rider'?

This rider allows you to stop paying premiums if you become disabled or seriously ill, without losing your coverage.

What Are the Types of Insurance Premiums?

Insurance premiums can vary based on payment frequency (monthly, quarterly, annually) and policy type (fixed, variable, or renewable).