Insurance Premium

Insurance

An insurance premium is the periodic amount paid to the insurer to keep the policy active. For term insurance, premiums buy pure protection with no maturity benefit. For health insurance, premiums provide coverage for medical expenses. Premiums are determined by age, health, coverage amount, and policy term.

In detail

Premium determination factors:nTerm insurance: age (biggest factor), sum assured, policy term, health conditions, smoking status, occupationnHealth insurance: age, pre-existing conditions, coverage amount, plan type (individual/floater), city tiernnPremium payment modes: annual (cheapest), semi-annual (slight loading), quarterly, monthly (highest total cost -- insurance companies charge 2-3% loading for monthly mode).nnTax benefit: health insurance premium deductible under Section 80D.

Formula

Annual vs monthly premium difference:nAnnual premium: Rs 12,000nMonthly mode: Rs 1,100/month = Rs 13,200/year (10% extra for convenience)

Real-life example

🇮🇳 India example

Rohit, 28, non-smoker, buys Rs 1.5 Cr term plan for 35 years. Annual premium: Rs 14,200. If he switched to monthly mode: Rs 1,280/month = Rs 15,360/year -- Rs 1,160 extra. Over 35 years at 7% investment return, this Rs 1,160/year invested instead = Rs 1.7L additional corpus. Always pay annually.

Frequently asked questions

What happens if I miss a premium payment? ▼
There is a grace period: 30 days for annual/quarterly policies, 15 days for monthly. If paid within grace period, policy continues. After grace period: policy lapses. For health insurance: lapse means loss of waiting period benefits accumulated. Revival possible within 2-5 years with health declaration and late fee.