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Why do insurers have different premiums for life insurance plans?

A life insurance policy is necessary for everyone to get security during unforeseen events such as death. As different types of life insurance policies are available in the markets; it is imperative to evaluate them properly. While buying a policy, customers should know premiums from different sources. Premium is the amount paid by a policyholder to an insurer for a certain duration. It allows a person to get the maturity benefit after the expiration of a policy.

Hence, customers should know about the plan in detail before buying it. Also, it is wise to know what is life insurance premiums before investing money that will help proceed further. The premium rates may vary from one insurer to another insurer in India. This is because insurers will determine the premium prices based on various factors. Therefore, a customer should evaluate them with more attention that will help select a plan which caters to his/her requirements. Therefore, people should analyze the factors that can influence the premiums of an insurance plan.

10 Important Factors that determine the insurance premium rates

  1. Insurance underwriting process
  2. Mortality
  3. Expenses and profit margins
  4. Target Segment 
  5. The benefits and duration of a plan
  6. Gender 
  7. Sum Assured 
  8. Health Conditions 
  9. Rider
  10. Policy Type

 

1. Insurance underwriting process

Most insurance companies use the underwriting process to decide whether they can approve or make changes to the insurance application depending on the risk’s profile. Some of the factors used in the process include age, lifestyle, occupation, family health issues, hereditary disorders, gender, and income. For example, smokers and those doing risky jobs have to pay more premiums while buying a policy. In addition, some insurers recommend medical exams for policy buyers to evaluate the health conditions and other things.

2. Mortality

Insurers use mathematical and statistical techniques to assess the insurance risks with high accuracy. It involves determining the probability of death occurring at particular age levels. For example, a 50-year-old person has to pay more premium when compared to a 30-year-old person. An insurance company will fix the amount based on any existing illnesses, diseases, etc.

3. Expenses and profit margins

Expenses and profit margins are some other factors that will influence the premium costs to a large extent. The profit made by an insurer plays a key role in determining the final life insurance premiums significantly. Other things that impact the premium rates include operational costs, documentation charges, distribution costs, etc. 

4. Target Segment 

The target segment is another factor that will affect the premium rates. Those who live a better life have to pay a smaller premium amount which helps save more money. At the same time, anyone with a risky profile results in a higher premium. 

5. The benefits and duration of a plan

Although age plays an important role in determining the premiums, one should consider tenure properly. This is because the duration of a plan will impact the premium prices. For example, anyone who buys a plan for more than 7 years has to pay a higher premium. 

6. Gender 

Gender is one of the factors that will determine the premium prices of an insurance plan. For example, an insurer offers a low premium for women due to their high life span.

7. Sum Assured 

Sum assured is an amount paid by an insurer to a policyholder. However, insurance policies with high sum assured amounts involve high premiums. Therefore, policy buyers should consider using a life insurance calculator that will help determine the premium amounts. Furthermore, it gives ways to select a plan depending on the needs.

8. Health Conditions 

An insurance firm will determine the premium rates based on the health conditions after submitting a medical report. Anyone who is having an illness has to pay more premium rates.

9. Rider

A rider is an additional benefit available for a policyholder that helps to get extra coverage and benefits. At the same time, insurance policies fix premium rates based on the rider options, and customers have to pay more when choosing them.

10. Policy Type

Insurance companies offer different insurance plans for customers, and the premium rate may vary depending on a policy type. Therefore, a policy buyer should choose the right type of plan to easily pay its premium.

 

Top 5 tips to reduce premium rates

  1. Buying a term plan at a young age
  2. Following a healthy lifestyle
  3. Selecting the riders wisely
  4. Buying a policy online
  5. Choosing the right premium payment frequency

 

1. Buying a term plan at a young age

Customers who want to buy a new insurance plan should consider investing money at a young age. Then, they should purchase a policy before 30 that will help save money on premium rates.

2. Following a healthy lifestyle

One should consider following a healthy lifestyle because it provides ways to reduce the premium prices. He/she should avoid drinking and smoking that will help buy a policy at low prices.

3. Selecting the riders wisely

An insurer offers rider for policyholders allowing customers to increase coverage significantly. At the same time, one should select them wisely, giving ways to accomplish goals to a large extent.

4. Buying a policy online

Most insurance companies allow customers a policy online at the best prices that will help reduce the premium rates. Not only that, they provide ways to compare the premium rates online, thereby showing ways to select a plan at affordable rates.

5. Choosing the right premium payment frequency

Policyholders should choose the right payment mode after buying a policy. For example, an insurer offers a policy buyer monthly, quarterly, half-yearly, and annual payment mode options. In addition, some insurers provide discounts on annual premiums, thereby showing ways to reduce premium outgo. 

 

Conclusion: 

When buying a life insurance policy from the markets, one should calculate the premium rates to pay them on time. They should know how life insurance works in India from different sources that will help make the right decision. Policy buyers should evaluate the factors that will affect the premium prices. It is wise for them to know life insurance policy details online or other sources for meeting exact needs in the coverage process. Picking the right type of life insurance policy allows a person to ensure financial stability for his/her family. Also, it helps to manage the problems during emergencies without any hassles.

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