Life insurance must be a critical part of your financial portfolio. Insurance companies have fixed premium rates that cannot be negotiated and hence can turn out to an expensive venture for few. However, some practical steps and strategies can reduce your life insurance premium outgo.
Importance of Life Insurance Policy
Life is nothing but full of unpredictability. Due to this uncertainty, life insurance is a must. It is important to secure your family’s and loved one’s future after your time. Life insurance not only provides financial security but also helps safeguard the business of the insured. You should be very active while choosing the best types of life insurance. The following are some benefits of life insurance policy:
To Repay Debts: People tend to take loans during their peak professional life for education, buying a home, car and so on. In fee of the sudden demise of the sole breadwinner, the burden of repaying these debts falls on the dependent family members.
If there is a life insurance policy on the deceased, the sum assured amount obtained from the policy can be used by the family to pay off the loans thereby reducing the financial burden.
Fulfill Family Needs: The main purpose of life insurance is to take care of the needs of dependent family members after the demise of the person. Spouse, children or aged parents will continue to be dependent on the single person’s income or his savings.
With the stoppage of regular income, the family will have to make sacrifices and compromise on their needs and necessities. This is where the life insurance amount will help. The family can continue to adopt a self-sufficient lifestyle even in the absence of the breadwinner. They can also invest judicially for education and other future expenses.
Business Expenses: Life insurance is not just for use as a safety net for personal expenses but business as well. If one of the business partners dies due to unforeseen circumstances, the surviving partner gets the share of the deceased, and his nominees will get the sum assured.
Future Planning: There are various insurance plans with different sum assured and payouts. These are tailor-made for short term or long term expenses as they arise. Short-term liabilities include loan payments while long-term expenses are children’s education, buying property and future investment.
Peace of Mind: More than the financial benefits, having a life insurance policy gives peace of mind to the insured as well as his family members. They can put their mind to rest not worrying about financial problems in case of emergency as they have a safety net to bank on.
Tax Deduction: According to section 80 C of the income tax act, policyholders can avail of tax benefit of even up to 1.5 lakh on insurance premium. The lump sum amount received on death or maturity is also exempt from tax.
Factors that determine Life Insurance Premium
Even though you may be approved for a life insurance policy right away, many factors determine the premium rates.
Age: Age of the insured is the primary factor that determines life insurance premium. The company will encourage younger people to buy insurance so that they pay premiums for a longer time. The insurance companies then get enough funds to pay out the claim.
The older your age when you buy, greater the insurance premium will be. This will be based on whether the policy is term or life.
Gender: As per statistics, women have greater life expectancy than men and hence pay a lesser premium compared to men of the same age and same policy value.
Physical Health: Life insurance premiums also depend upon the physical characteristics of insured like height, weight and if they are in the right proportion.
Medical Conditions: Your medical history including any existing medical conditions determines the life insurance premium amounts. Serious health conditions will cause a higher insurance premium payout.
If you are insuring for your family as well, you need to disclose the medical history of all members to determine the premium.
Occupation: Some occupations carry a bigger risk than others. Jobs in which the individual likely to lose his life like a firefighter or police officer will need to pay higher premiums for his life insurance. In some cases, even the insurance policy may be declined because most insurance companies aim to build a low-risk clientele.
Tips to Reduce Life Insurance Premium
Life insurance policies have certain determinants based on which your premium may become higher or policy itself rejected. Although some factors like age, gender is beyond human control; there are some steps that we can take to reduce the insurance premium payout. You can use life insurance calculator to calculate the premium. It is vital to read the policy terms and conditions carefully before signing up. Declarations regarding health, jobs, habits need to be made in the policy application itself.
The following tips and steps if adopted will help in reduction of the policy premium.
Avoid Excess Smoking or Drinking: Excessive smoking or drinking will not only result in the deterioration of health but also increase your premium payable.
Insurance companies ask the applicants to disclose these facts for a reason. It has been observed that chain smokers, as well as occasional smokers, end up paying more than regular applicants.
Smokers are determined by whether they consume nicotine or tobacco in any form. Smoking a cigarette or chewing nicotine gums fall into this category.
If your answer to the question of whether you have smoked in the last n number of years in the form is yes, you are classified as a smoker.
The same rule holds good for alcoholics as well.
Due to smoking or drinking, life expectancy comes down because of bronchitis, lung cancer and so on. Hence insurance companies increase the premium.
It is always better to get rid of these habits or keep them in control. If you do have these habits, it is important to disclose it in the form without hiding.
Be Aware of Occupational Risks and Dangerous Hobbies: Some occupations and careers involve hazardous tasks and risk factors. In this case, insurers consider you as a high-risk investment. You may be charged a higher premium or denied the policy altogether.
The same holds good for adventure sports or hobbies that are dangerous. Insurance companies increase the premiums automatically.
If the high premium is a concern, then you must make reconsider the decision about pursuing dangerous hobbies.
Pre-existing Health Conditions and Treatments: Existing health conditions are a big indicator of mortality of the insurer. People with diabetes, blood pressure or heart ailments age obviously in the high-risk category and hence have to pay a higher premium.
It is important to eat right, exercise, and maintain a healthy lifestyle to keep health ailments under control and reduce your premium dues.
If your body weight or BMI is greater than a certain percentage, insurance companies can charge you a higher premium as you are under their radar for developing health ailments. It is hence crucial to keep your weight under control.
Longer Policy Term and Bigger sum Assured: Insurance companies charge a high premium if you choose a long policy tenure and bigger sum assured. For instance, a long-term policy means that the insurer is covering the risk of your death for a longer time.
Similarly for high sum assured, insurance companies have to pay a lump sum amount in the event of the death of the insurer during the policy term.
Make sure you reduce these two factors at the time of signing up for the policy if you do not want to pay a high premium.
Understand if Riders are Essential: Riders are additional benefits that can be added to the existing policy. Although they are useful, you must evaluate their need before adding them as riders increase the premium amount.
Buying Policy Online or Offline: Buying a policy online will be much cheaper than buying by other modes.
Similarly, paying premium annually will reduce the amount rather than paying monthly, quarterly or half-yearly.
Watch out for Hidden Fees: While reading the policy rules, make sure to read thoroughly any hidden rules and terms. There may be some rules such as
If the death of the insured is by accident, the premium is more.
Waiver of premium rider for disabled.
Early collection of insurance proceeds if you are terminally ill.
Make a Point to Point Comparison: Like with any other product, shop around and compare policies by their coverage and premium. Choose the one that best fits your need and financial background. Hire a professional financial planner if needed to advise you on choosing the best policy.
Apply for a Policy at a Younger Age: It is always advisable to apply for life insurance at a younger age to pay a lower premium amount.
When you are young, you are medically fit and physically able. Hence, the insurance cost and in turn the premium amount is reduced.
Pay Premium on Time: It always helps to pay off your premiums on time to avoid unnecessary delay or late fees. If you take care of the above factors, read life insurance policy agreement in detail, maintain a healthy lifestyle, you can reduce the premium amounts of your life insurance policy.