A term insurance policy is a specifically designed life insurance policy that provides financial security to the policyholder’s family in case of the untimely demise of the policyholder. To avail of the policy, one has to pay premiums for the duration of the policy term. If the policyholder passes away during the term of the policy, the family receives a lump sum amount as death benefits, as per the terms and conditions of the policy. Term insurance plans are the easiest and most inexpensive way of securing the financial future of your family. In this article, we’ll take a look at how term insurance premiums are calculated.
There are a lot of factors that insurance companies take into account when calculating premiums for term insurance. Factors like age, lifestyle, health history are some of the major factors used by insurance companies to determine the term insurance premiums for an individual. Here is a list of all those factors that can help you understand how term insurance premiums are calculated:
Age: Age is one of the main factors taken into consideration when determining premiums for term insurance. Younger people are generally considered to be at a lower risk of death. So, if you buy a term insurance plan at a younger age, you can likely avail of lower premium costs. On the other hand, older people are considered to be at a higher risk of death due to ageing and ageing related ailments. Thus, older individuals looking to buy term insurance have to pay higher premiums.
Lifestyle habits: Lifestyle in the context of term insurance refers to whether an individual has dangerous habits like skydiving, racing, trekking and other extreme sports. If a person indulges in dangerous hobbies that increase the likelihood of their death, their insurance premiums are bound to be more expensive, compared to an individual with no dangerous habits.
Health and Health History: The health of an individual is an important factor that is used by health insurance companies to determine term insurance premiums. A fit individual with no major diseases has to pay cheaper premiums than an individual suffering from any serious illness. An individual with a history of chronic illness such as cancer or heart attack will also have to pay costlier premiums as they would be considered at a higher risk of death.
Smoking and Drinking: A person who indulges in smoking or drinking or both may have to pay higher premiums than someone who does not smoke or drink. Smoking and drinking have been linked to several critical illnesses such as cancer, lung disease, heart disease etc, and can lead to a higher risk of death.
Occupation: One of the factors considered by insurance companies to calculate term insurance premium is the occupational hazard of a person. If a person is involved in a dangerous occupation such as driving on dangerous terrains, mining, fishing, etc, they will have to pay costlier premiums compared to individuals involved in ordinary no-risk jobs.
Tenure/Duration of the Policy: The duration of the policy also affects premiums. For instance, a 20-year policy would entail more premium payments compared to a 10 or 15-year policy. However, a longer tenor would also translate to cheaper premiums.
Sum Assured: The sum assured refers to the amount of money that the policyholder’s family/nominee is eligible to receive in case of the death of the policyholder during the policy term. If a policyholder chooses a term plan with a higher sum assured, they will have to pay higher premiums compared to someone who has chosen a lower sum assured.
Riders/ Add-Ons: Riders refer to additional covers that an individual can opt for by paying extra. The more riders that a policyholder chooses to include in their plan, the higher their premium costs will be. Some examples of riders include:
Critical Care Cover
Accidental Death Cover
Return of Premium Rider
Obesity: Obesity is a major health factor considered by health insurance companies. Obese people are generally at a higher risk of diseases such as diabetes, heart disease, cardiac arrest, etc. They are, thus, at a higher risk of death. Hence, obese individuals have to pay more expensive premiums compared to fit individuals.
Gender: Some insurance companies also consider gender as one of the factors when calculating term insurance premiums. Women have a higher life expectancy compared to men, so they can get access to comparatively lower term insurance premium payments.
A term insurance policy offers many benefits over a whole life insurance plan. Most importantly, term insurance plans are significantly cheaper than whole life insurance plans while providing the same amount of cover or even higher sum assured.
As mentioned above, you can choose additional riders to get critical care cover, accidental death cover, and more, under your term insurance plan for increased protection. If you want an approximate quote for term insurance premiums, you can check out the term insurance premium calculator on Bajaj Markets.
In short, term insurance is the most cost-effective way to create a financial safety net for the family in case of an untimely death of the earning member of the family. Check out the various term insurance plans available at Bajaj Markets and choose a plan that suits your needs.
Term insurance premiums are calculated based on various factors such as age, health history, occupation, lifestyle, etc.
The best age to buy term insurance is in your 20s and early 30s, as you will be able to benefit from cheaper premiums available for younger applicants.
Term insurance provides a high sum assured at very cheap rates for a limited number of years. On the other hand, whole life insurance is significantly more expensive but provides coverage for the whole life of the policyholder. You can choose a relevant plan based on your budget and needs.
No, usually, you do not get your premiums back under a term insurance policy, unless you choose to buy Return of Premium, which is an additional rider.
It is advisable to take a look at all available term insurance plans online and choose a plan that meets your requirements.