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How to compute the premium for a 1 crore term insurance policy?

Byzestful Grace

May 9, 2024

A term insurance policy is a critical financial safety net that protects your family with a lump sum payment in the case of your untimely death. A 1 crore term insurance policy, in particular, has gained popularity in India due to its large coverage amount, which can safeguard your loved ones’ financial future. This policy assures that your family can maintain their level of living, cover everyday costs, and achieve significant life objectives without difficulty. 

  • Inflation and cost of living

India, like most of the nations, is facing an increased cost of living and inflation. Over time, these factors gradually degrade the value of money, so it is necessary to have decent savings. A 1 crore term insurance plan can be a solid financial shield for your family against these economic dynamics and can ensure they can sustain their lifestyle while you are absent.

  • Covering large liabilities

Many families have considerable debts, for instance, mortgages and student loans. In the event of a calamity, these liabilities may be borne by your family. A one crore term insurance plan can help your family pay off these large debts, protecting them from financial strain and relieving them from the responsibility of clearing the dues.

  • Income replacement

The disappearance of the main earner in a family may cause financial problems. The 1 crore term insurance policy serves as an income replacement, meaning that your family will enjoy the same lifestyle even without you. It ensures that your family is financially stable, and they can provide for their daily needs without any fear.

  • Funding major expenses

Big moments in life, such as a child’s higher education or wedding, are money-consuming processes. With a 1 crore term insurance policy, you can be certain that these goals will be met even if you are not there. The huge sum insured eases your family to achieve these life goals. 

  • Supporting spouse’s retirement

In case of your sudden death, a term insurance policy of 1 crore can be helpful to your spouse during their years of retirement. This measure can help your partner to have a safe and worry-free retirement despite loss of income. 

However, by following these smart ways, you can make the process more manageable – 

  • Age factor

The premium for the term insurance plan is usually lower when the policyholder is younger. Another reason is that youth are seen as more healthy and less likely to file a claim. Hence, it is better to buy term insurance at a young age to get a lower premium rate. Once you reach a certain age, the risk of health problems increases, so the cost of the policy goes up.

  • Health condition

A very important factor in calculating the premium is your current health condition. For example, say you have preexisting conditions such as hypertension, diabetes, or heart disease, and the insurance company considers you to be at a higher risk, which makes you pay a higher premium. Additionally, smokers or tobacco users are not excluded from the hike in premiums because of the health risks associated with these habits.

  • Policy term

The duration for which you want coverage also referred to as the term of the policy, affects the premium amount. On the whole, the higher the term of the policy, the more often the insurance company has to cover its risk. As a consequence, the premium for a longer-term policy is higher than that for a shorter-term policy.

  • Income

One major factor that determines the amount of coverage you can get from your term insurance policy is the level of your income. Insurance companies typically give a limit of 15-20 times your yearly salary. If your annual income is high, you would be qualified to get a high coverage amount that would increase the premium.

  • Lifestyle

Your lifestyle behaviours, such as smoking, drinking, or using drugs, might have a significant impact on the ultimate premium. Insurance companies view the latter lifestyle patterns as risk factors that might lead to the development of chronic illnesses. As a result, living a healthy lifestyle not only benefits your health but also lowers your insurance premiums.

  • Occupation

The type of your employment might affect the rate for your term insurance policy. If you work in a high-risk occupation, such as mining, construction, or firefighting, the insurer will see you as a greater risk. As a result, you may need to pay a greater premium than someone with low-risk work.

  • Sum assured

The sum guaranteed is the amount that your nominee will receive in the event of your untimely death. The bigger the sum insured, the higher the premium. The premium for a 1 crore term insurance policy would be proportionally high because the sum insured is significantly higher.

  • Gender

On average, women have a higher life expectancy than males. As a result, insurance firms frequently provide lower premium rates to women since they are thought to pose a smaller risk.

  • Mode of payment

The regularity with which premiums are paid might also have an impact on their amount. If you pay the premium annually, it may be less expensive than making monthly, quarterly, or semi-annual payments. This is because insurance providers may offer reductions for annual payments.

  • Riders

Riders are supplementary benefits that you may add to your standard term insurance policy to increase coverage. Common riders include critical sickness riders, accidental death benefit riders, and disability riders. While these riders provide more comprehensive coverage, they come at an additional cost and so raise the total premium. However, the increased security they offer may make the additional expense justified.

To summarise, a 1 crore term insurance policy can give significant financial protection to your family in your absence. When calculating the premium for such insurance, consider criteria such as age, health, occupation, income, and lifestyle. Remember, the aim is not to obtain the cheapest insurance but to acquire one that provides adequate coverage for your family’s requirements. So, assess your needs, compare several insurances, and make an informed selection. Remember that term insurance is not a cost; it is an investment in a secure future.