Being the sole breadwinner of his family, Kartar Singh, aged 35, wanted to safeguard his family from any financial peril in the case of any unfortunate eventuality. He wanted a term insurance plan of at least Rs 50 lakh. But he often wondered about the affordability of the premium amount. Then, one day, he sought advice from his colleague Sartaj, who already had an existing term policy. The latter explained to Kartar that online term policies providing basic life coverage of Rs 50 lakh had affordable annual premium payment options ranging from Rs 5,000 to Rs 6,000.
Like Kartar, many individuals defer purchasing a term insurance policy assuming that the premium would be expensive. But, the advent of online term plans have ensured that an individual can now select the most appropriate plan online, and can even calculate the premium they will be required to pay depending on the coverage they require. Along with cheap premium amount, online term plans provide increased convenience, which allows policyholders to leverage all associated benefits, from the comfort of their homes.
For instance, a 35-year-old salaried male, who is not a tobacco user, can avail the benefits of the basic life cover of Future Generali Flexi Online Term Plan with a relatively cheaper premium payment. Here, the annual term insurance premium for 50 lakhs will be approximately Rs 6,806, including the GST rate of 18%. The maturity age of this basic life cover is 75 years, and the family would receive a lump sum payment of Rs 50 lakh in the unfortunate case of death of the individual during the policy term.
How term insurance premium is calculated?
Term insurance premiums are calculated by insurance companies on the basis of risk factors. To put it simply, risk reflects the likelihood of the individual making a claim. The premium amount is lower in the case of fewer associated risks. The following factors are taken into consideration while assessing an individual’s risks :
Age: The foremost factor for calculating premium amount is age. Though any individual between 18 and 55 years of age can avail an online term policy, the premium rate for a younger individual will be lower as compared to older individuals. This is because a higher age means the possibility of onset of various health ailments. For instance, the term insurance premium for Rs 50 lakh basic cover for a 54-year-old individual will be around Rs 22,000 annually. A similar basic life cover policy can be availed by a 35-year-old individual with annual premium payment of around Rs 6,000.
Gender: Insurance companies charge women with lower premium rates as studies have shown that women usually live longer than men.
Medical history: The medical history of any individual directly impacts the rate of premium. If an individual is suffering from any illness, including lifestyle diseases like diabetes, obesity or hypertension, then it can result in higher premiums. Even if an individual had suffered from a critical illness in the past, it would directly affect the premium rates. Insurance companies also seek details about the family medical history. If an individual’s immediate family members like parents or siblings suffered from any debilitating disease, then it can result in higher premiums.
Lifestyle habits: Insurance companies charge higher premiums from individuals who are tobacco users. This is because the average lifespan of tobacco users is lesser than people who don’t use tobacco in any form. Insurance companies usually ask whether the individual has used tobacco products in the last 12 months. In case of tobacco users, the term insurance premium for Rs 50 lakhs can increase from 15% to 20%. The maturity of an online term plan also decreases in the case of tobacco users. While non-tobacco users can avail a term policy which matures on the individual reaching the age of 75, tobacco users can avail the same policy with the maturity age of 65.
The term insurance premium for Rs 50 lakhs for a non-tobacco user from the age of 30 years to 35 years can range between Rs 5,000 to Rs 6,000 on an annual basis. Any insurance premium is calculated on the basis of risk assessment of an individual, which, in turn, is contingent on factors like age, gender, lifestyle habits and medical history.