What is Premium in Insurance? Everything you Need to Know

You can never have any uncertainties that arrive with a warning. Well, you cannot predict, but you can plan and prepare yourself for such situations. Therefore, planning for insurance premiums involves the financial safety of you and your loved ones, which is obtained through opting for life insurance. An insurance policy ensures the protection of you and your loved ones in case of any financial emergency.

In other words, an insurance policy is a contract between a policy provider and a policyholder. In this contract, a policyholder needs to pay a regular amount of pre-decided premiums.

Let’s understand how insurance policy works. And, what is premium in insurance and its factors?

Understanding Insurance Premiums

Insurance premiums are a specific amount of the sum that you pay on a monthly basis to obtain specified coverage from an insurance company. It guarantees financial compensation for the damages or losses as long as timely payments are made. The insurance firm decides the premium, and the amount is influenced by the policy you choose.

Let us understand how several factors influence insurance premiums.

1. Type of Insurance Policy: Different policies have different risk profiles that affect the insurance premium. For instance, if you apply for a life insurance policy, the premium amount is affected by factors like age, gender, health and amount of coverage.
2. Age of Applicant: The primary factor that affects insurance premium cost is your age. The monthly premiums of insurance policies are less expensive for people who are young in age and have longer life expectancies. Meanwhile, if you are over a certain age, you may not even qualify for life insurance.
3. Health History of an Applicant: The policy process for most applicants includes a medical exam in which the firm records your height, weight, blood pressure, cholesterol, and other essential health metrics.

In some exception cases, you may also require an electrocardiogram (ECG or EKG) to check your heart. Some of the insurance firms also offer “no exam” policies, but then you are expected to pay more.

1. Lifestyle Choices: If you have life-risking hobbies such as racing cars or rock climbing or habits like drinking or smoking, then you’ll have to pay more for insurance. Several firms also charge you more depending on your profession, for instance, a police officer or a miner, which is a relatively dangerous profession.

How Insurance Premiums Are Calculated?

Premiums of insurance policies are calculated based on the above-mentioned factors, like age, health, and lifestyle. These calculations are done according to the rules of the insurance policy. You can check the insurance company’s website to understand the premiums paid. These premiums also vary from gender. Usually, female policyholders pay a lesser premium amount than male ones.

Do Insurance Premiums Have Tax Saving Options?

You can enjoy several tax-saving options when applying for insurance policies, such as income tax benefits and protection benefits of insurance plans. Here are the three key tax-saving plans:

1. Section 80C of the Income Tax Act, 1961: This tax saving plan allows you to deduct the premiums that you pay for life insurance plans from your taxable income. You can save tax up to INR 1.5 lakh per annum.
2. Section 80D of the Income Tax Act: It allows you to eliminate the cost of health insurance for you and your parents, subject to the terms and conditions mentioned.
3. Section 10 (10D) of the Income Tax Act: This tax saving plan exempts the life insurance advantages that you or the policy nominee will receive from the insurance company from taxes.

Insurance policies like life, health, and others have always ensured that you and your family are secure financially in case of emergencies. Most of us are engaged in various forms of policies but are lacking in the knowledge of their components.

These components answer several questions on insurance such as what is premium in insurance, what factors influence premiums, and what various tax saving options are. You can connect with the insurance experts from Canara HSBC Life Insurance. They will help you choose insurance policies and plan for your financial journey.