Life insurance premium related aspects which are not well understood as types of insurance premiums, premium payment frequency etc. Premium is the price which is paid to buy the policy. It actually makes the insurance contract complete. But there is still or even the things you will do in case you forget to pay on time. Are you aware of the tax benefits available only on premium pays for life insurance premium policies in your name or in the name of specified relatives? It is important for any individual to know the basic knowledge so he will be able to choose and maintain your life insurance policy.
What does insurance premium exactly mean?
An insurance premium is counted as the premium per thousand rupees of sum assured. It is illustrated in the form of tables of premium rates by insurance companies. The premium varies across insurance plans, policy terms, sum assured and the age of.
Factors to consider before applying life insurance premium
Payment scheme of Insurance
- Premium is required to be paid in advance in either of the forms
- By cheque, or
- Demand Draft.
- The limit of INR 50,000 as the premium is set by the IRDA for cash payments.
- Further, for the easy transactions, most of the insurance companies make the process easy for the customers by allowing the online payments.
Discounts offered at the premium rate
- At times insurance companies also offer a discount on the premium rate based on the sum assured. These discounts are known as rebates.
- Usually, the companies offer rebates on policies with higher sum assured.
- Servicing policies remain same for all the different types of policies.
- The higher sum assured means that the cost of servicing per unit of the sum assured is lower.
- It translates into higher profits for each unit of the premium paid.
Rebate for the sum assured
- Rebates are the discounts offered on the premium rate.
- Most of the companies offer the rebate for higher sum assured.
- It happens because of the cost of servicing of all policies of the same type being almost the same.
- The higher sum assured means lower servicing cost per unit sum assured which ultimately translates to higher profits or returns per unit of premium paid for the company.
Rebate for periodicity of premiums
- Depending on your cash flow, you can choose to pay the premium monthly, quarterly, half yearly or annually.
- Higher the cost of servicing will leads to the higher frequency.
- The funds remain with the company for longer period of time if the premium is paid at one go for the whole year compare to the monthly payment.
- Therefore, premium at one go, insurance company can earn higher returns.
Rebates Are offered on online payment
- A company’s servicing cost for premiums paid online is normally lower than for those paid physically.
- Company can also save on commissions generally paid to agents in case of physically sold policies.
- Rebate varies from company to company. It may have already been given before the online life insurance premium payment rates are quoted.
- Consequently, the premium rates quoted would already include the rebate.
Extra Premium Is Charged In Some Cases
- For people who do not carry additional risk, the ordinary premium rates are applicable.
- However, in case of the people who carry extra risk, such as
- Health problems like
- Heart disease, or
- Diabetes the insurance company may charge an extra premium.
- Health problems like
- At times extra premium is charged when the policyholder is involved in a hazardous occupation.
- When the insured opts for additional riders with the base policy extra premium is charged.
Increasing and decreasing life insurance premium
- A typical example of increasing premiums is the term plan with the increased premium.
- Decreasing premium is applicable in mortgage redemption policies, where the premium goes down with the decrease in the policy holder’s outstanding loan amount.
- Tax benefit available only for the premium paid for specified persons.
- Under Section 80C of the Income Tax Act, any amount paid by a policyholder towards life insurance premium for self, spouse or children can be claimed as the deduction from taxable income.
- Premium paid for policies in the name of any other third party (other than spouse or children) such as parents or in-laws is not eligible for deduction under section 80C.
- All the premiums can be included if a person is paying the premium for more than one insurance policy,
- People who do not carry any additional risk or standard lives in insurance parlance are those for whom normal premium tables are made.
- However, the ordinary premium rates are applied in case of standard life.
- However, in case of people who carry extra risk because they suffer from health problems such as
- Heart disease, or
- Work in hazardous occupation the insurer may charge an extra premium.
- A premium which is charged under a policy remains the same throughout the duration of the contract, it is called level premium.
- In this case, premium level is guaranteed and cannot be changed by the company.
- However, it will not only benefit to the life assured but also to the insurance company and therefore most life insurance plans except some term insurance plans involve level premium payment.