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7 factors that affect life insurance premiums
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Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.
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Life insurance allows you to protect your loved ones even in your absence. It works by giving you a life cover, meaning that your life is the asset that is insured. This cover lasts for a specific period, known as the policy term. In case of your demise during this policy term, the insurance provider will pay out the sum assured under the plan to your nominee.
This is how a basic life insurance plan works. In return for this life cover, the insurance company charges a fee, known as the life insurance premium. The cost of a life insurance plan depends on a variety of factors, which is why different policyholders may pay different premiums for the same plan.
Want to know more about the factors that influence your life insurance premiums? Check them out below.
1. Your age
When you are younger, the risk of mortality is lower. So, your life insurer will generally take this into account and charge lower premiums if you are young and healthy. This means that a 25-year old policyholder will pay lower premiums than a 35-year old policyholder for the same plan.
This is why experts recommend buying your life insurance plan when you are younger. As you move from one age group to the next, the cost of a life cover will also rise significantly.
2. Your gender
Statiscally, women tend to live longer than men. Many life insurers account for this aspect and charge lower premiums for their women policyholders. That said, your gender alone cannot increase or decrease your premiums. It works in combination with all the other factors in this list. So, a 25-year old man may still pay lower premiums than a 30-year old woman.
3. Your lifestyle habits
Life insurance providers generally ask for insights into your lifestyle habits — particularly the harmful ones. So, if you have poor lifestyle habits like smoking or drinking, or if your hobbies include dangerous activities like adventure sports, your premiums may correspondingly increase.
You may think it’s easy to lie about these habits in your life insurance application form. But that would be a costly mistake toi make, because if your insurer finds out you have filled in incorrect information, your life insurance cover could become invalid.
4. Your medical history
Some life insurers may require you to undergo medical examinations when you apply for the life cover. You will also have to disclose information on your family’s medical history. If your medical reports show any red flags about your health, or if you have a family history of any hereditary illness, these factors imply a higher mortality risk.
To counter this risk, your life insurance provider will charge a higher premium than what’s normal. Again, it is not advisable to provide inaccurate information in this category too.
5. The kind of plan you choose
There are different types of life insurance plans, each with varying benefits. Term insurance, for instance, only provides you a basic life cover. Endowment plans combine the advantages of savings and insurance. And then there are Unit Linked Insurance Plans (ULIPs), which give you the dual benefits of investment and insurance.
Typically, the wider the range of benefits offered by your life insurance plan, the higher the premium will be. What’s more, your premiums will also increase if you opt for add-on riders, which provide additional benefits over and above what your base plan offers.
6. The amount of cover you choose
This one is quite straightforward. The higher the sum assured offered by your plan, the more the premiums will be. So, a life cover of Rs. 1 crore will be more expensive than a life cover of Rs. 50 lakhs. This is simply because when you choose a higher amount of coverage, the risk taken on by your insurance provider increases accordingly.
7. The policy term
The longer the policy term, the more your premiums will be. This is on account of the fact that your mortality risk will continue to rise as you age. Also, over the course of a longer period of time, the possibility of the insured incident occurring also rises. So, the risk borne by the insurance provider in a 30-year plan is higher than the risk in a 10-year plan. Consequently, the premiums are also higher.
Conclusion
All things considered, being aware of these factors before you purchase a life insurance plan can help you make an informed decision. Some of these factors are beyond your control, but in others, you have more say. For instance, you can cut down on your smoking to reduce your life insurance premium. Alternatively, you can try to get a life cover when you are young and healthy, so your costs are lower.
You can also adjust the amount and tenure of coverage to make sure you can afford the premiums. This is because if you don’t pay your premiums on time, your policy will lapse. And you will lose your life cover as well as any other benefit that your plan offers.
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