How is your Term Insurance Premium calculated?

term insurance, term insurance premium calculator, term insurance plans
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Note how we calculate and have an estimate of the money needed for our grocery shopping. For that matter, we always have an estimate of every purchase beforehand. However, most of us don’t understand how to calculate term insurance premiums or the amount of benefit offered by the insurer. Today is the day to shed light on this and learn to calculate premiums beforehand.

Almost every insurance company is now providing its customers with online premium calculators, given it is a digital world. Nevertheless, without the basic knowledge, those calculators remain unused. So, let’s get started with learning.

Term insurance:

  • There is a certain category of life insurance policies which offer cover for a specific period, e., a term. They are referred to as ‘term insurance policies.
  • If the policyholder passes away during the term period, the family receives a monetary benefit given that the policy is active.
  • Term insurance helps the family of the policyholder in times of ill-fortune. Securing one’s family financially is important as life is mostly unpredictable. When the sole breadwinner of the family passes away, picking up the financials is extremely difficult for the rest of the family. A term insurance policy can offer that essential financial assistance to the family, at least till the bad days last.
  • The premium of an insurance plan is the amount of money one has to pay periodically to purchase a policy.

Term insurance premium calculators:

  • Premium calculators for term insurance are online interactive tools which can be used to get an estimate of the insurance requirements.
  • These calculators, provided with specific data, help the user to know the premium amount or the benefit amount.
  • The premium calculators help the user to figure out the coverage amount their nominee needs in case of an unfortunate death.
  • These online calculators are formula-free. The users have to fill in the required details to find out about the premium.
  • The details provided by the user can be analysed using the calculator to understand the benefits of the scheme.
  • Comparison of various term insurance plans has never been easier, thanks to these calculators.
  • All the financial data including the tax computation is analysed and presented simply in a jiffy.
  • The calculator is a quick handy tool and gives an accurate assessment of any policy.

ICICI term insurance plan calculator:

  • The required information for this calculator is the gender, date of birth and about tobacco consumption.
  • After receiving this input, the calculator displays the max life cover amount possible while also suggesting the policy term.
  • This premium calculator provides the user with two premium options. They both are periodical payments, with different time periods.

Other calculators might need more information, about residential location, term, sum assured, etc.

Details needed for the premium calculator:

  • Make a list of the below details to calculate the premium of a term insurance plan.
  • The required personal details of the policyholder are-name, age, gender, date of birth, smoker/non-smoker.

The required details about the policy are:

  • Sum assured– the amount of coverage assured under the policy in case of death during the term
  • Policy term– the period covered by the term insurance plan
  • Premium paying term– the period in which the policyholder has to make periodical premium payments.
  • Premium frequency– the intervals of premium payment.

There are various plan options available for term policies.

  1. Life option: under this policy, the nominee will receive the coverage sum as a lump sum amount following the demise of the policyholder.
  2. Extra life option: if the policyholder chooses extra life option for the term insurance plan, then the nominee will receive double the coverage assured.
  3. Income option: under this option, the nominee will first receive a lump sum followed by monthly installments for a period.
  4. Income plus option: this works in the similar fashion of income option, except the amount gets doubled.

After filling in these details, the premium calculator will give the following results:

  1. Annual premium excluding taxes
  2. Taxes
  3. Total premium including taxes
  4. Premium due date

But then, why does the premium of the term insurance changes over time? Why is it different for everyone? The risk factor is different for everyone, and it alters as time passes by. How is this risk factor determined by the insurer? It’s important to understand which details impact the risk factor as it has a significant impact on the policy.

The factors needed to determine the risk involved in a term insurance plan:

  • Age: the sooner you purchase a term insurance policy, the less premium you pay. As you grow old, the risk factor is higher for the insurer as the health conditions decline. Thus, the premium of the policy is higher if you are old.
  • Gender: according to a few studies, women live five years longer than men. So, men are charged with more premium compared to women.
  • Occupation: the occupation of the policyholder is one of the key factors that determine the risk. Some have life-risky occupations like soldiers, pilots, miners, oil or gas industry workers. Therefore, people working in a dangerous environment pay a higher premium than others.
  • Location: if the geographical location of the policyholder is prone to natural disasters, then they’ll have to pay a higher amount as premium than the ones living in safe locations.
  • Height and weight: insurers consider body mass index of the policyholders to determine the health risks they already carry. People with a normal balance of height and weight pay a lesser premium than that of overweight policyholders.
  • Lifestyle habits: smoking, heavy alcohol consumption can lead to life-threatening diseases. This means a higher risk factor and people with these habits pay a high premium amount.
  • Medical history: if the policyholder has suffered from any severe illnesses, then a higher premium is charged. However, for some cases where the person has recently had cancer, the insurers usually don’t offer term plan. Also, if any of the immediate family members of the policyholders have been diagnosed with severe illnesses, the premium is higher. This is because the policyholder might contract those diseases later during the term.
  • Sports and Hobbies: A person who is very passionate about sports and indulges in outdoor activities like motorsports, skiing, poses a higher risk to the insurer. Dangerous activities like these will increase the premium.

Along with these, the marital status, number of dependants, travel history and financial status also determine the premium of the policyholder. It is clear that everything associated with your life can have a weighted impact on your premium.

How to choose a right plan using term plan calculator:

  • Decide properly on the coverage amount- Deciding on your goal can only guide you throughout the process. Be clear on the amount of coverage your family or nominee needs in your absence. Then, the rest of the process is decided.
  • How much time is the right time? – Many of the calculators suggest a period needed to achieve your specified goal. There are fixed options of 15, 20, 25 and 30 years in the term plan. The right period can make things easy for you. Take a note of your financial plan and circumstances and then decide on the term. For those early birds, a tenure of 30 years is ideal.
  • Compare and then decide- Go through all the policies available in your market. In India, firms like SBI, HDFC, ICICI, and many others offer good term plans, and most of them are online. Check the claim settlement ratio and previous insurance history of the firm.
  • Inflation factor: the inflation factor and its possible impact on your coverage shouldn’t be ignored at all. The coverage amount should be enough to cover expenses, 20 or 30years after the policy is purchased. The ever-rising inflation might leave the benefit amount to be of less value.

Best term insurance plans available in India:

  1. e-Term Plan – LIC Online Term Plan
  2. ICICI Pru iProtect Smart
  3. SBI Smart Shield
  4. HDFC Click 2 Protect Plus
  5. Max Online Term Plan Plus

Points to remember:

  • Always be honest about your personal details, especially about your medical history with the insurer. The more transparent you are, the easier is the claiming process for your family.
  • When you use a term plan calculator, understand that calculators provided by various firms are different.
  • Go through the documents provided by the insurer carefully.
  • Be clear on the exclusions of the term insurance plans.

Future planning has never been easier. Term insurance plans will stand by your loved ones in your absence.

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