When people consider purchasing a policy for themselves, there are different factors they will consider. Among the main factors will be the cost of the policy. Usually, this cost is paid in the form of a premium. Depending on the type of policy and its tenure, the premium is decided. For many policies, the premium is low and for others, it is high.
Premium is what keeps a policy operational and prevents it from lapsing. This is also applicable to an endowment policy. However, how does a premium work in this plan? And what are the factors that decide the premium for this plan? Read on to get more information.
What is an endowment plan?
It is a type of life insurance policy that offers the policyholder dual benefits of investment and insurance under the same plan. Investment is done in a fund of your liking. The returns from this fund will be given to you once the policy matures and you survive the term. These returns can help you live a financially secure life.
The insurance part provides protection to your loved ones from life risks in your absence. If you were to pass away suddenly before the policy matures, your family would receive a death benefit from the insurer. They would also receive the maturity benefit once the policy matures.
How does the premium in this plan work?
In an endowment policy, the premium that you pay towards it is used for two purposes. The first is investment. Based on the fund that you select, investment is done in a particular number of units. The money required for this investment is taken from the premium. Similarly, the life cover that is provided to your dependents is covered by the premium paid towards the policy. If the premium is not paid, you and your family would be deprived of these benefits after a certain period.
What factors decide the premium?
The following are the factors that decide the premium of an endowment policy:
1. Lifestyle of the insured
One of the factors that insurers generally scrutinise when a person is looking to buy a policy is their lifestyle. Believe it or not, lifestyle plays a huge role when it comes to how much you will have to pay towards the policy. The type of job you do, the risks involved in it, whether you drink or smoke, whether you exercise or not are some of the indicators related to your lifestyle.
For example, if you opt for a policy of 15 years but, you happen to be a heavy smoker, the insurer might consider this as a risk factor. In such situations, the insurer could charge you a higher premium compared to a non-smoker.
2. Sex of the policyholder
A factor that many people tend to overlook related to premiums is the sex of the policyholder. Men and women have different lifestyles which impacts the longevity of their life. As per studies done by various experts, it is said that women tend to live five times longer compared to men. Factors such as their occupation and lifestyle help in enhancing their longevity. So, if the policy is in the name of a woman, the insurer might charge her less. On the other hand, the insurer could charge a male policyholder more.
3. Sum assured of the policy
When you opt to purchase this life insurance policy, your main objective would be to receive a large sum assured amount. Depending on what your life goals are, you will opt for a policy that offers a good amount of sum assured. However, a higher sum assured means higher premium. For example, the premium of a policy with a sum assured of ₹50 lakhs would be lower compared to a policy with a sum assured of ₹2 crores.
This is the role that premium plays in this policy. When you use the life insurance calculator before you purchase the policy, do keep in mind the factors that could impact your premium.