Most commonly, people know about life insurance as a death benefit. There are two numerical values they consider – premiums payable and death benefit for the nominee. The truth is – life insurance premium is not just a random number.
A lot of calculation goes into deciding this amount at the insurer’s end for different individuals. This can be one reason many people avoid understanding the calculation process and pay the premium straight away. However, a simpler option is to use a life insurance premium calculator online to determine the premium amount for any chosen type of insurance.
A life insurance premium calculator is an online tool that can help you understand the premium calculation process. Since life insurance is meant to provide financial security, you should clearly understand how the premium is calculated. With an insurance premium calculator, you will know how to maximize life cover. Moreover, using an online calculator enables one to gain an adequate knowledge about various types of insurance.
Why Do You Need a Life Insurance Premium Calculator?
Gone are the days when you need to wait for a local agent to calculate life insurance premium on your behalf. With multiple life insurance premium calculators available online, you can get the calculation part done at your convenience. Also, you get to know how the premium is linked to the following parameters:
Life Insurance Coverage
Commonly known with many names such as sum assured and death benefit, life insurance coverage is a significant parameter used in premium calculation. Some common values that people choose as the sum assured are Rs. 50 Lakhs, Rs. 1 crore, Rs. 2 crores, and even higher. Whether you are eligible for a specific sum assured depends on your age and many other factors.
In simple terms, the premium goes higher as you increase the life insurance coverage. To check its direct impact, use an online life insurance premium calculator for better understanding. Set a specific sum assured as a reference point and then increase or decrease it to gauge the corresponding impact on the premium. This will help you decide on selecting a suitable life insurance coverage.
it’s policy period is the duration for which the policy is effective, i.e., it provides insurance coverage to the insured. It is your choice to decide how long you want this duration to be. Based on the policy period selection, the premium is determined.
Like sum assured, the policy period also has a direct impact on the premium. If you select a longer duration for life coverage, says 40 or 45 years, you need to pay a significant premium amount. You can get an estimate of the amount payable for a policy by using an insurance premium calculator linked to it. After entering the personal details in the calculator fields, select a sum assured, and then increase the policy period in a block of 5 years. You will see how the premium varies.
In general, you should choose the policy period until you want to retire from work life.
Premium Payment Tenure
Many individuals think of it to be the same as the policy period, which is not the case with every policy. The premium payment period is the time-frame you choose to continue paying the premiums for your life insurance policy. It is the same as the policy period when you select the regular pay option. Otherwise, you can also set a limited payment period lesser than the policy period.
Most life insurance premium calculators show these options available as a part of the premium calculation process. Switch between regular pay and limited pay selections, and you will see how the premium varies in both cases.
There is a better way to understand limited pay premium payment tenure is – by selecting a premium payment period shorter than the policy period, you converge the associated risk, which increases the net premium outgo per year. While the premium payment period ends earlier, the policy continues to be in force.
Ways to Maximise Life Insurance Coverage
Many people face a common hurdle while using a premium calculator. It is about differentiating between these two terms – maximum coverage and adequate coverage. While you can select the maximum sum assured you are eligible for, it may not fit your finances well because of the high premium.
Therefore, what you need is a ‘maximally adequate’ coverage, which can be chosen in the following ways:
1. Know Your Needs
If your self-analysis says that a life cover of Rs. 50 Lakhs (say) is enough for your family’s needs, stick to it. Avoid facing a financial burden in terms of premiums payable for the long term.
2. Include Suitable Riders Only
The availability of several riders does not mean you need all of them. Pick the ones whose benefits are in close sync with your needs and lifestyle.
3. Select a Longer Policy Period
Ideally, your policy should cover your life till the age of 70. Use a life insurance premium calculator and select the policy period till this age, given the average life expectancy in India.
Maximizing the benefits of a life insurance policy requires an in-depth understanding of the premium calculation process. So, make sure you gain this understanding first to become adequately insured.