Buying a life insurance policy is an important decision and must be done with extreme care. Since the investments will be long-term, it is important to do financial due diligence before signing up for a policy. Life insurance premiums are payable every year for the entire term of the policy. Therefore, it is essential to know whether such payments can be maintained or not.
Apart from being a protection against the insured’s untimely death and the resulting financial stress on the family, certain types of life insurance can also be used as a financial savings plan with a future event in mind. These include endowment plans and unit-linked insurance plans (ULIPs).
Depending on the sum assured, it is necessary to check the premium amount that will be payable. Generally, the longer the term of the policy, the lower the premium. Sometimes, getting a lower sum assured may also become necessary to make the premium affordable. This depends on the finances of the person buying the policy. It is always important to remember that a life insurance policy remains in force only if the premiums are paid regularly. A default in the premium means a policy that has lapsed, which will result in financial loss. Therefore, it is necessary to see that the premium contemplated is within the applicant’s financial capability.
There are ways to calculate the premium payable for a sum assured and ways to tweak details so that the correct premium becomes available. To work this out, it is best to use a life insurance premium calculator. With this calculator, the premium can be calculated easily. If you have a particular sum assured in mind, enter that into the calculator along with the term and personal details, and the calculator will display the premium to be paid.
When it comes to additional riders, their inclusion in the policy is essential. They differ from one insurance provider to the other, but they are designed to make the policy more flexible so that it can be customized as per the policyholder’s exact needs. But the addition of these riders results in a premium hike; though riders come with additional benefits, they come with additional premiums as well.
Therefore, it is essential to get the basic premium payable and check to see how much more the additional riders will add to it. If the premium after adding the other rider clause is more than what one can pay, you can try adjusting the policy term and an alternate frequency of payments. The online calculator is a great help in situations such as these because it can instantaneously give you revised estimates. One can use it to figure out premium levels for different sum assured and term policies. Change the sum assured or the term of the policy to get the right premium amount for you.
The best way is first to see the total monthly family expenses. It is better always to be a little conservative in these sorts of calculations and err on the side of caution. It is never a good idea to buy a policy and then realize that paying the premium is a problem. Calculate accurately how much is available for the premium. See whether this sum is available every month. If there are any doubts, it is better to understand the problem before investing in a policy. It is also good to invest in more than one policy, keeping the premium within the payable amount. This way, in the event of a financial crisis, at least one policy will remain.
If the term of the policy is the most important aspect for you, then see if reducing the sum assured helps in lowering the premium to manageable proportions. Do this with extreme caution since the ultimate value of this investment depends on the payment of the premium every year. Sometimes extending the policy lowers the premium. Compare this with lower premiums offered for online policies. It may be that an online policy will have the right premium.
Life insurance policies are a necessity for every individual, especially for those who have dependents. Therefore, calculating the premium before buying one is an essential step. A miscalculation in the premium may result in defaulting and a lapsed policy. In order to avoid this, do your due diligence and go for a suitable term plan that serves your family well, as well as doesn’t become a burden for you.
