People are gradually becoming more aware about the importance of insurance in life as an investment. Life insurance policies help protect a person and his/her family members family from financial difficulties that may arise due to the sudden and untimely death of the person. Life insurance investment is made in the form of an agreement between the insurance company and the person who buys the policy from that company. It states that the insurer or the company will pay a definite amount to the family of the insured if the latter dies due to unforeseeable circumstances during the policy term.
Why life insurance is an investment?
Apart from understanding what life insurance is and its various options available, it is also vital for a person to understand why insurance coverage is needed in today’s life. Some of the reasons are:
- Security and Assurance: The most important reason to buy an insurance policy is the financial security that it provides to the insured person and the family members in case of unforeseen situations in the future.
- Debt issue: This is another reason to buy an insurance policy which ensures that all your debts and financial liabilities are taken care of in case of your accidental death. This debt could be in the form of personal loans, credit loans or property loans.
- Long-term plans: One can buy an insurance policy to fulfill long-term plans like buying a house or buying a car, starting a new business, international vacation, retirement, etc. In such a situation, the traditional life insurance will not do. In case of child plans and retirement plans in the form of ULIPs, people can also invest in the market and get returns accordingly. One can even opt for plans that combine investment and saving with insurance.
- Business Expenses: If the insured owns a business, the returns from the insurance policies can help meet any losses or liabilities in case of an accidental death.
Before purchasing any life insurance plan, one should be clear about his/her financial goals that would be met through the policy. They can be immediate or long-term goals. So the type of life insurance should be chosen accordingly. One should be aware of various aspects related to a life insurance plan to get the best assured amount through an affordable premium. Some of the aspects are terms and conditions associated with each plan, the premium amount, the term of the policy, riders and the sum assured. To gain a better knowledge, let us look at the types of life insurance available in India.
Life Insurance Premium Calculator
Before selecting the suitable insurance plan, one should know the various parameters that help in taking the right decision. These points form an important part of the insurance premium calculator, the tool that helps calculate the premium. Let’s look at the fields that play a key role in generating the approximate cost of the premium.
Type of the plan: The premium to be paid for any insurance plan depends on the type of the plan chosen. For instance, a basic term insurance plan will need less premium amount compared to that for the money back plan.
Age: This is an important aspect considered while calculating the premiums. An 18-year-old man will have a higher life expectancy compared to a 50-year-old man. Thus, the younger man will pay a lower premium compared to the other one.
Gender: The premium amount is also different for males and females.
Marital status: This too is considered while deciding the amount.
Occupation: The type of work a person does makes a huge difference in the premium amount. If the applicant is involved in hazardous work, his premium amount will be higher that that for a person who is a clerk.
Annual income: A person with a higher annual income can get high sum assured as he/she has a capacity to pay higher premium.
Desired sum assured: A higher sum assurance attracts higher premium as the claim amount is high and the company takes high risk in accepting a high sum assurance.
Habits: The premium amount also depends on the habits of the applicant. For instance, in case of a person who smokes, the premium would be higher as his life expectancy is expected to be lower than a normal human being.
Frequency of the premium payment: The mode of payment selected and the interval of the payment also contributes to the premium amount. If an insured selects online payment mode on a yearly basis, the company saves the charges on paperwork and other service which it is passes on to its clients in the form of rebate. This reduces the overall premium amount.
Medical history of the person and family: The medical condition of the person applying for the insurance makes a huge difference in the calculation of the premium amount.
Term of the plan: If the plan is of longer duration, the premium amount goes down and vice versa.
Riders: Use of riders or additional benefits too increases the premium amount.