Introduction
Ramesh, aged 25 years, purchased a term plan for Rs.1 crore for Rs.490/- per month. On the other hand, at age 35 years, Rahul purchased the same plan for more than Rs.1000/- per month. The difference in the premium payment is because of the varying age brackets in which the two individuals fall. Therefore, different factors affect the life insurance premium.
In common, individuals do not understand the life insurance premium cost and think that the cost of life insurance depends only on the sum assured. If the concept and computation of life insurance cost are unclear to you, let us discuss it in detail.
What is life insurance?
Life insurance is a policy contract issued by any insurance company per the regulations levied by IRDA, the regulatory body. Most life insurance policies also protect the life insured for deaths and provide investment options. When life insurance benefits are enormous, don’t you wish to explore them thoroughly.
Let us find out how a life insurance policy helps? First, you must be aware of the facts as you pay a premium for every life insurance product.
How does life insurance help?
A life insurance policy will help you at the most crucial time of life when you expect the least. The insurance policy is for the family’s financial security when the life insured passes away. For example, suppose Pramod purchases a term life insurance policy for Rs.1 crore. After paying the premium for ten years, Pramod died in a road accident. By that time, his daughter was in 1st year of post-graduation, which was the crucial year for her education. The life insurance policy paid the death benefit when the family was grief-stricken. It reimbursed the family with a sum assured, which they could use to repay the home loan and pay the college fees.Â
Pramod’s family’s situation is one of the examples of how a life insurance policy helps. However, the benefit under the life insurance policy varies according to the type of product chosen.
As everything comes with a cost, you need to understand whether the cost you bear for life insurance premium is worth paying or not.
How much does life insurance cost, with an example?
To evaluate how much a life insurance policy costs, we need to consider an example depending on age and gender.
Assume that the monthly premium will vary according to age for a term life insurance for Rs.1 crore. Here we are an example of a female looking for a term plan cover of Rs. 1crore. The premium will increase with the growing age, reducing the policy term.
| Age in years | Monthly Premium (non-smoker) (in INR including GST) | Term Provided |
| 25 | 673 | 35 years |
| 30 | 754 | 30 years |
| 35 | 867 | 25 years |
| 40 | 1081 | 20 years |
In another evaluation of how much does life insurance cost, below is the table that mentions the premium amount. The premium for term life insurance policy of Rs.1 crore purchased by male and females will be different. In the same age bracket, males tend to pay more premium for the same sum assured of Rs.1crore of term plan.
| Age in years | Monthly Premium (non-smoker) Female(in INR including GST) | Monthly Premium (non-smoker) Male(in INR including GST) |
| 25 | 673 | 754 |
| 30 | 754 | 877 |
| 35 | 867 | 1060 |
| 40 | 1081 | 1356 |
All the premiums computed here are sourced from ABSLI DigiShield Plan.
Common Observation of Life Insurance Premium:
- You pay less premium when young because that is when you are healthier and less prone to any diseases.
- Women pay less premium than men because they have a longer life expectancy than men.
- Rates of premium vary from company to company. This is why comparing premium rates from different insurers will help you find the lowest premium amount.
- The average cost of life insurance from a certain company reflects its policyholders’ average age and health.
What are the factors that affect life insurance premiums?
Life insurance premiums depend on age, health issues, gender, etc. So let us look at each one by one.
Age: As you get older, your insurance prices tend to rise. This is why many financial gurus advise purchasing life insurance when you are young to take advantage of lower prices. In addition, if you acquire a permanent life insurance policy when you’re young, you’ll likely pay reduced monthly premiums for the rest of your life. In the example above, you can see that the premium when a female was 25 years was lesser than when she turned 40 years—buying a term insurance policy when young specifically helps because the premium remains the same for the policy term.
Gender: Women have a longer life expectancy than men; males pose a more significant risk to life insurance firms. As a result, life insurance premiums for men are often higher than for women of the same age and health.
Type of Life Insurance: Term life insurance is typically less expensive than permanent life insurance. Term life insurance is only suitable for a specific amount of time. Permanent life insurance, such as whole life, lasts until you cancel it or cease paying the payments. Similarly, the premium for a savings plan or a child plan is more than a term plan. It is because the benefits will also vary.
Amount of Death Benefit: The life insurance cost will vary if the amount of death benefit varies. A term policy for Rs.1 crore will be cheaper than the term plan for Rs.1.5 crore.
Health Status: The cost of life insurance is heavily influenced by your health. If you use tobacco products, you should expect a significant increase in your insurance price. In addition, before qualifying you for a policy, most life insurance policy types will need you to complete either a health questionnaire or a health check-up.
Occupation: If you work in a dangerous field like construction, war reporting, or law enforcement, you may be exposed to more dangers regularly than an office worker. You may have to pay a bit extra for life insurance due to the increased risk.
When multiple factors affect the life insurance cost, would you want more than one policy for more security?
Can any individual have more than one life insurance policy?
Yes, it is permissible to have multiple life insurance policies. People buy numerous life insurance policies to maximise their coverage or prevent being denied a claim. Even if a claim is rejected by one insurer, the beneficiaries may benefit from a different insurer if they have numerous life insurance policies.
More than one life insurance policy can also help to satisfy different purposes in life. For example a term plan will pay your family in lump sum on the death of the policyholder. But a child plan will help the family take the education uninterrupted. The child plan policy will also pay if something unfortunate happens to the policyholder.
You can have different life insurance products because in the end it is about building financial security of the loved ones.
Conclusion
Life insurance premium cost is the amount you pay to receive the guaranteed benefits. Though it depends on various factors, the idea is to create financial security for your loved ones. Apart from the security and death benefits, the life insurance policy provides income tax deductions under Section 80C. For buying a life insurance policy, comparing the quotes online is a wise thing to do. It will save you some more pennies. If this doesn’t help, connect with your financial advisor.
