A life insurance policy is essentially a contract between the insurer and the policyholders. To validate this contract, the policyholder pays an amount known as the ‘premium’ upon purchasing the policy and again at predetermined intervals, depending on the frequency and form of payment chosen at the time of purchasing the policy. Amidst this, insurance seekers often have this question of “Why do premiums on life insurance plans vary so much across different companies?” Customers are eager to get the best coverage at the lowest possible cost, and they are often confused when confronted with different insurance premiums for almost the same insurance plan of 50 lakh term insurance that does not appear to differ significantly. In some cases, similar products offered by the same company may be available at different costs; let’s see why “term Insurance Plans Varies Across Companies”?
Why Do Life Insurance Premiums of the Same Plans Differ So Much?
Each insurer’s premium calculating procedure is determined by three key elements. These factors cause premiums to differ between insurers for the same term insurance plan. Here are the aspects that influence the premium calculation of 50 lakh term insurance or in general as well:
Insurance underwriting process: Underwriting is the process of determining premium rates that are appropriate for the risk involved. The term ‘risk’ refers to the chance that the insurer takes by providing you with insurance coverage. Each insurer may categorize such risk differently for the same profile. Several aspects are considered throughout the underwriting process, including your age, gender, occupation (how risky your job is), lifestyle, policy tenure, any genetic disorders in the family, and so on.
Mortality: The premiums on term insurance plan are also calculated using an actuarial basis (a mathematical and statistical method for assessing insurance risk) that takes into consideration the likelihood of mortality at various age levels. According to experts, it is assumed/estimated that a 50-year-old individual’s premium will be higher than that of a younger person because the insurance premium of the said individual is influenced by their likelihood of falling ill.
Expense and profit margins: The premium of 50 lakh term insurance is also determined by the factors that are insurer-related, such as expenses involved in creating the policy. Insurers have diverse pricing structures, risk assessment methods, and investment returns. The operational cost is also included in the policy premium. This may include office expenses such as the cost of the policy document, the insurance agent’s commission, and other overhead or miscellaneous expenses incurred by the insurer. The profit an insurance company can make from an insurance policy also plays an important role in determining the final insurance premium of your life cover plans.
Exigency element: Contingency charges may be a minor but important component of the premium. This is relevant since an insurer’s annual claim volume cannot be predicted. It has a tremendous impact on the insurance firm. In the event of an unexpected occurrence or a significant number of claims in a given year, the inclusion of a contingency element in the premium, dispersed across a large pool of consumers, assists businesses in maintaining financial stability. As a result, this contingency clause has a negligible impact on premium values.
Reasons Why the Insurance Company is Quoting you a higher premium than others
If you’re just starting to look into life insurance plans for 50 lakh term insurance, you might be wondering how much money you’ll have to spend on life insurance coverage. There are numerous criteria that influence the premium applicable to you that we have discussed in the aforementioned points. However, it is hard to understand why you have to pay a premium that is more than others for the same life insurance plan. Let’s have a look at the reasons that can cause you to pay higher life insurance premiums:
1. Higher Age: Life insurance premiums of 50 lakh term insurance are age-dependent; the older you are, the more you pay. If you get a policy at a young age, you will pay lower rates for the term of the coverage than someone who is older. How? Because as you get older, your health is more likely to deteriorate, and the insured event could occur much earlier.
2. Gender: Women typically pay less for life insurance plans. Several studies have found that women outlast men by five to seven years.
3. Your lifestyle includes smoking: It is established that smoking causes diseases such as lung and throat cancer and because of this smokers live for a shorter period and hence pay higher life insurance premiums. As a result, if you enjoy smoking, you are more likely to develop a variety of health problems, which is a red flag for insurers.
5. You are not buying the product online, but from a distribution agent: As competition heats up, insurance companies are providing lower premiums than offline coverage in order to establish an online presence. Most online life insurance plans have 30-40% lower premiums than traditional plans. This is because the purchase is made directly between the insurer and the customer, reducing paperwork costs and agency commissions.
6. Your hobbies may include “risky” sports: If you enjoy climbing steep mountains and racing vehicles, or if you like to participate in extreme activities, you will most likely have to pay a higher premium. This is because engaging in activities increases the risk to your life, which is a major worry for insurers.
7. Occupation: Some occupations are deemed more dangerous than others. For example, pilots, soldiers, fishermen, gas industry workers, and mine workers might
expect to be paid more than those who work in safer environments, such as teachers, office workers, and shop workers.
8. Your Medical History Is Not the Best: Pre-existing medical issues might also raise your premium for life insurance policies. It’s a simple insurance principle: those with medical disorders cost more to insure since they are more likely to require more testing, diagnostics, medication, treatment, and other expenses as a result of their health.
9. Your family history indicates the occurrence of hereditary illness: You may be in great health, but your family history includes diabetes, cancer, heart disease, hypertension, and dozens of other problems. To the insurance provider, this suggests you are a bigger risk because you may inherit the same medical conditions, which results in a higher rate.
So we are saying,
Getting life insurance or a basic term insurance plan is crucial, even if it means paying higher rates. Don’t put it off because of this reason. Your life insurance premium may appear to be a major payment today, however, if your family suffers financial difficulty following your unexpected death, the premiums you pay will be more than just another monthly payment. In short, your term insurance plan will provide a path to financial security for your loved ones.