Life insurance is a reliable way to secure the financial future of your family. In case of your demise, your family will receive the death benefit which they can use for managing their expenses. While there are now many different types of life insurance plans available for every need, calculation of sum assured and premium remains constant in every policy.

How much sum assured do you need? How will the premium be calculated for your selected sum assured? Let us have a look-

1. What is the Sum Assured?

The sum assured is the guaranteed amount that the beneficiary of your life insurance policy will receive in case of your death. The sum assured is also known as the coverage or the cover of your insurance policy.

2. How is the Sum assured Calculated?

There are many different ways to calculate the sum assured for your life insurance policy. One of the most popular methods is Human Life Value or HLV. This method calculates sum assured based on your current and future expenses, present and future earnings, and age.

It helps you calculate your capitalized value based on current inflation. You can now find Human Life Value calculators online to know your HLV and select the right sum assured.

3. What is Life Insurance Premium?

The premium of a life insurance policy is a one-time or recurring expense which you pay for the policy. Your policy will only be valid until you pay the premiums as per the guidelines of the insurance provider.

Most insurance providers allow you to select the premium payment frequency from monthly, quarterly, half-yearly, yearly payments, or one-time payment.

4. How is the Premium Calculated?

The premium calculation depends on several factors. The insurance companies have an underwriting department which calculates the premiums. Every individual applying for a life insurance policy is required to go through this underwriting process.

Generally, younger and healthier individuals are required to pay a lower premium as compared to someone in their 40s or 50s. Smokers and non-smokers are also quoted different premiums as smokers are considered riskier.

5. Factors Affecting Premium

Some of the most important factors that affect your life insurance premiums are-
  • Type of plan
  • Sum assured
  • Your age
  • Policy tenure
  • Riders (if selected)
  • Current health condition
  • Smoker/non-smoker

Understanding Life Insurance

To make the right decision, it is first essential to understand the product in detail, especially if it is something as important as life insurance. Now that you know how the sum assured and premium is calculated, go ahead and compare the policies to make a smart decision.

Learn more about different Online Term Insurance Plans here.

DISCLAIMER

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.



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