How to Calculate Term Plan Premiums and Choose the Best Life Insurance Plan

A life is never complete without its share of milestones. Our lives usually go through various stages, from getting a job to marriage, making a home, having kids, and leading a happy life with family and children. But there are many sacrifices we make for our family, including our income, to ensure that they have the best of everything. However, what if something unfortunate were to happen to you? How would your family deal with the outstanding monthly expenses, the children’s school fees, or the home loan?

That’s where life insurance steps in! And in India, term insurance makes up the largest chunk of pure life insurance due to its transparency and affordability! Let’s discover how you can calculate your premium, learn about your needs, and find the best term plan for your family in simple words.

What Is Term Life Insurance?

A term insurance policy is the purest form of life insurance. The insured makes a small payment (called a premium) either monthly or yearly while they are alive, and in turn, their family or nominees receive a lump-sum payment (the sum assured) when they die.

The best thing about term insurance is that it doesn’t get mixed up with financial products and simply protects your family by promising to pay a big sum of money in case of an unfortunate incident, all for a relatively small premium amount. So term insurance is perfect for people looking for a high sum assured for a limited time period.

Factors That Influence Your Premium Cost

Insurance companies usually consider the following while calculating your premium:

Your AGE: Age has the largest impact on the cost of your term insurance premium. The earlier you buy the policy (say, in your 20s), the cheaper and healthier you are, lowering the premium cost for the entire lifetime of the policy
Sum Assured (Coverage): The higher the cover amount, the more expensive your plan will be, irrespective of the term length.
Term Length (Duration): As the name suggests, the length of the coverage impacts your premium amount significantly. Coverage until age 60 or 65 is much cheaper than until 85 or 99 years.
Health History and Habits: Insurance companies give discounts on non-smokers and people without dangerous habits. Maintaining a healthy lifestyle reduces the risks of dangerous diseases, which lowers your premium.
Gender: Due to a higher rate of longevity in females, almost all insurance companies in India provide discounts on premiums for women.

How to Use an Online Premium Calculator For Term Insurance?

Gone are the days when calculating costs meant visiting the nearest branch or asking your local agent to run some calculations on a paper. Today, we can calculate costs from our homes using an online term plan Premium calculator. Simply enter your details, such as date of your birth, gender, smoking, required cover, and duration. Sit tight and let the tool do the magic! Within seconds, you’ll receive an estimated premium based on the information you provide, along with any applicable charges. You can experiment with the cover amount and tenure until you’ve found the most reasonable plan that fits your budget perfectly.

How Much Life Coverage Do I Need?

As mentioned above, one of the primary considerations when buying a term plan is the sum assured. A popular rule of thumb, suggested by financial advisors in India, states that your cover should be between ten to fifteen times your income.

Let’s take an example here: if your income is approximately eight lakh rupees per year, then your term insurance cover should ideally lie between eighty lakh rupees to one point two crore rupees.

However, there are additional things that you must consider before arriving at a decision:

Include Outstanding Loans: Include your home loan, car loan, personal loan, or money borrowed from friends or relatives. The next of kin should be able to repay everything without any financial stress or selling the family home to settle these liabilities.
Account for Big Future Expenses: Include future goals such as children’s higher education, wedding, and day-to-day expenses of everyday groceries and household items. The inflation rate rises by approximately 7-8% each year, and your family mustn’t have to face financial stress because you couldn’t afford these routine expenses.
Subtract Existing Assets: Your family can claim your assets such as bank fixed deposits or mutual funds to cover the expense on your death or critical illness. Subtract anything they can claim to arrive at the total sum assured.

Choosing the Best Life Insurance Plan

While it’s great to get the cheap rates, keep in mind that it’s not enough for your needs. You also want to be protected by a company that can stand by your family during this challenging and unfortunate time. Here are a few things to take care of while choosing the best life insurance plan:

Claim Settlement Ratio (CSR)

The claim settlement ratio indicates how many claims the company approves versus how many they reject in one fiscal year, and it’s a solid metric to judge the trustworthiness and reliability of an insurance company. Always go for a company that has a CSR of more than 97% or 98%.

Solvency Ratio

On the other hand, the solvency ratio suggests how well an insurance company is able to cover its claim obligations, even in the face of economic recession and market crash. The higher the solvency ratio, the better the claim settlement for your family.

Adding Riders to Your Coverage

Riders are a way to increase your coverage to meet specific needs of your family while only paying an extra amount on top of the base premium.

A critical illness rider helps with some of the expenses that come with life-threatening diseases like kidney failure, cancer, and stroke.
An accidental death and disability rider pays an additional bonus in case of accidental permanent or temporary disability or death to help cover the medical bills.

Mode of Payout – Lump Sum or Income

The death benefit can be paid either as a lump-sum payment or as income for a certain number of years. The income option is particularly helpful for your family, especially if they have financial responsibilities such as home loans. Even a combination of both could be an option to make sure that they aren’t at the mercy of lump-sum wealth, while still supporting regular household expenses like food, electricity, and water.

Tips to Reduce Premium Amount

Buy at a Young Age: The younger you are while buying the policy, the more affordable it will be for the whole coverage duration.
Purchase the Policies Individually: Opt for an annual payment, as the processing and other fees for monthly premium schemes increase the cost of your plan.
Go Direct with the Website to Buy Term Insurance: This eliminates middlemen commissions, resulting in lower costs to you.
Lead a Healthy Lifestyle: Don’t smoke or drink too much. It may not only decrease your premium but also help you stay healthier, happier, and longer!

Conclusion

Keeping your family happy and safe can become a daunting task for every working parent. While term insurance provides complete coverage for an affordable price, and a long-term plan, it can offer substantial tax savings and peace of mind, knowing that your family will continue being taken care of no matter what. So take this opportunity today and calculate your needs with an online Premium calculation tool, compare features among various companies, and obtain the best life insurance for your family to protect them for years to come.