People often underestimate the need for having a life insurance policy. Even if you're in denial of life's unpredictability and its potential consequences on your family—think of the debt you’d leave behind if something happens to you—protecting your family is of utmost importance. And it isn’t just about replacing lost income, life insurance also helps you achieve long-term goals such as buying a home or planning your retirement.
But do you know how much insurance premium you need to pay? Do you wonder why your premiums sometimes change? Or why car and home insurance quotes are different from one insurance company to the next?
When calculating the insurance premium—be it for a person, car or home—there are several factors at play in determining rates.
What’s an insurance premium?
An insurance premium is the money charged by insurance companies for coverage. The cost of an insurance policy depends on risk, which in turn reflects the likelihood of the insurer making a claim. The lower the risk, the lower your premium will generally be.
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Assess your lifestyle
The first step is to evaluate your lifestyle: whether you indulge in too much drinking or smoking, or if you’re a spendthrift, and so on. This, in conjunction with your current income, will help you determine how much life cover you will need.
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Account for inflation
It is imperative to consider the rate of inflation when figuring out how much insurance you need to purchase, as it can impact your premium rate.
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Use a calculator
An insurance premium calculator is specially designed to help you determine the actual premium you will need to pay the insurer. HDFC Life has a range of interactive tools and calculators to compute the premium. Depending on the insurance plan desired, you just have to fill out information in the calculator and the tool will present recommended plans.
There are various factors that affect the cost of term insurance premium rates, such as:
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Age of the applicant
Current health history
Intake habits
Sum assured
Tenure of the policy
Underwriting process
The amount of insurance premiums charged is determined by calculations done by the underwriting department of the insurance company. It depends on their life history, age and health. The information is gathered and analyzed to predict how likely the insurance applicant will make a claim on their policy. The higher the probability of a claim, the higher the premiums usually are.
For example, for health insurance, the process involves investigation into familial diseases, analysis of reports from the medical information bureau. The company studies the data and uses it to predict prospective losses due to death or sicknesses.
Quote VS premium charged
Sometimes insurance premiums quoted are slightly different from the premiums charged. The difference between the quote and the actual charge depends on the way the insurance premium is calculated.
Many a times, the payment method selected affects the premium charged for a policy. For example, for a term insurance cover for Rs. 1 crore, the insurer can pay a premium amount Rs. 8,378 annually, or Rs. 733 monthly, which comes to Rs, 8796 annually, i.e. about Rs. 418 higher.
Online plans are often the better option since they have lower premiums, owing to the absence of intermediaries.
Home and car insurance
Just like life insurance ensures the security of your family, it is imperative to insure your home and your automobiles as well. In the event of an unfortunate occurrence such as natural disasters like earthquakes and floods or manmade ones like robberies and acts of terrorism, home insurance covers not only your home but also what's in it (electronics, furniture, etc). Car insurance on the other hand is equally crucial, especially since India witnesses a high rate of accidents andindiscipline on the road.
How is the price of home insurance calculated?
There are several factors that can influence the price of home insurance, includingthe level of cover you choose. The value of your home and its contents can influence the cost to replace them in the event of a claim. It’s important that you have enough insurance to adequately cover the cost of rebuilding and replacing your home.
How is the price of vehicle insurance calculated?
Some of the key factors which can influence the price of car insurance include the age of the driver/owner. The location where the vehicle is kept overnight is also taken into account. If theinsurer has a good driving history, the risk is lower and premium will be too. The make and model of the car, its age and type also influences the cost to repair or replacement of thevehicle, which affects the premium.
Conclusion
Financial tools and calculators are the handiest tools and search for any insurance policy should start with one such calculator. The premium calculator does all the work of choice comparison and investor benefits.