Determining The Premium Required For A 2 Crore Term Plan

 

How much premium to pay for a ₹ 2-crore term plan

 

Before considering the premium requirement, one first needs to know what a 2-crore term plan is and why it may be considered useful.

A ₹ 2-crore term plan is a term insurance policy that comes with a sum insured of Rs 2 crore. As recommended by experts^[1], the thumb rule of selecting an amount for term insurance is that the minimum sum assured should be at least 8-10 times the current annual income of the life assured. Now, suppose A earns Rs 15 lakh as annual income and has just bought a new house. Since he has a dependent spouse and a child, he decides to keep 10 times his annual income for them, i.e., Rs 1.5 crore. Also, suppose he has pending EMIs worth Rs 40 lakh. That takes his total requirement to Rs 1.9 crore. Thus, it may be a practical choice to buy a 2-crore term plan for A.

The amount of premium payable for any term insurance plan depends on a host of factors^[2]. Primarily based on the chosen sum assured, there are certain other major parameters, like the age of the insured or his/her health risks, etc. Based on these, the insurance company decides the premium. To understand how much premium you need to pay for a 2-crore term plan, let us delve deeper.

 

Factors affecting the premium for 2-crore term insurance

 

While buying term insurance, it’s crucial not only to choose the correct sum assured but also to assess one’s affordability to pay the premiums for the entire term. Thus, to calculate how much premium you need to pay for a 2-crore term insurance, it’s prudent to know beforehand the factors^[3] affecting the premium amount.

 

Sum assured

 

The term plan premiums are directly proportional to the sum assured. Higher the sum, higher is the premium.

 

Age

 

One of the crucial factors that governs the premium amount is the age of the policyholder. Premiums are relatively less for young people, as they are likely to live longer and have fewer health risks.

 

Health

Insurance companies consider the buyer’s health as another major factor. A person with no or fewer health issues is offered a lower premium as he/she is assumed to have fewer medical risks than those with bigger health issues.

 

Gender

On average, women are considered to have a higher expectancy than men, which converts to less risk for the insurance company. So, women are usually offered lower premiums.

 

Family history

 

Those with a family history of serious health risks like cardiac issues or diabetes are considered to be more prone to them. Hence, insurance companies seek higher premiums from such individuals compared to those who have no such family history.

 

Lifestyle and smoking habits

 

A person faces a higher premium when he/she leads a risky lifestyle due to a hazardous job, hobbies like adventure sports, or a habit of smoking. The insurance company considers him/her to have greater potential life risk compared to those who have a safer lifestyle.

 

Things to consider before buying a 2-crore term insurance plan

 

While it’s crucial to calculate beforehand how much premium you need to pay for a 2-crore term plan, there are certain important things^[4] that you need to consider. These may help you make the correct choice from the available term plan options.

 

Ideal coverage

 

The sum assured of your chosen term plan should ideally cover the amount of money your family would need to sustain the current lifestyle and cope with any possible struggle if you die an untimely death. To calculate the same, add 150 times the current monthly expense of the household, the total amount of loans and liabilities, the amount to fund specific crucial life goals like a child’s education or marriage, the desired retirement corpus for your spouse, and deduct the amount of total liquid assets you hold.

 

Ideal policy tenure

 

Decide on the policy term or the years you need to be covered by the policy. Ideally, it should neither be too long to financially burden you nor too small to fall short of the financial obligations you have.

 

Wise pick of add-ons

 

Term plans come with add-on facilities like additional coverage for accidents, critical or terminal diseases, or waiver of premium in case of disability or critical illnesses. Carefully consider your health status, lifestyle, job profile, and habits and make the choices to stay worry-free.

 

Claim settlement ratio

Do remember to check the claim settlement ratio of the insurance company to ensure your family doesn’t struggle to get the insurance payment in the event of the unforeseen event. The claim settlement ratio is the percentage of claims settled out of total claims registered with the company in a year. Thus, bigger the ratio, higher is the efficiency of the company.

 

Conclusion

 

A term plan may be a financial breather that helps your family cope when you are suddenly not there. A correctly chosen plan can not only help them sail through the crisis but also make them capable of sustaining the current lifestyle and fulfilling the desired life goals. Going by the growing uncertainties and the inflation rates, knowing how much premium to pay for a 2-crore term plan beforehand can be a wise bet to secure a worry-free future for your loved ones.

 

Frequently Asked Questions (H2)

 

 

How is the premium for a 2-crore term plan calculated?

 

The premium for a 2-crore term plan is calculated on the basis of certain crucial factors. Usually, insurance companies depend on the sum assured, the age and gender of the insured, the health profile and medical history, the lifestyle, as well as the smoking and driving habits of the insurer. The sum assured is directly proportional to the premium amount.

 

Can I customize the premium payment frequency for a 2-crore term plan?

 

There can be an option to customize premium payment frequency for a 2-crore term plan. However, it varies from insurer to insurer. Certain insurers offer premium cash flow plans^[5] that enable the policyholder to customize or change the interval of premium payment.

 

What happens if I miss a premium payment in my 2-crore term plan?

 

If you miss a premium payment in a 2-crore term plan, there’s usually a grace period available. In a 2-crore term plan also, insurers mostly offer a 15 days for monthly modes and 30 days for yearly, half-yearly and quarterly modes, within which the premium needs to be paid to continue with the policy. Beyond that phase, a policy gets lapsed, which needs to be renewed by paying a fine.

 

Can I change the sum assured after purchasing the 2-crore plan?

 

Usually, the  sum assured in term insurance cannot be changed mid-term^[6]. So, if you wish to increase the sum assured, you may need to surrender the existing policy and buy a new one. Alternatively, you can keep the existing one and add a supplementary coverage to reach the desired amount.

Reference

• ^[1] https://www.livemint.com/money/personal-finance/life-insurance-rule-minimum-sum-assured-an-investor-need-explained-11663994204745.html
• ^[2] https://www.investopedia.com/terms/i/insurance-premium.asp
• ^[3] https://www.investopedia.com/articles/investing/102914/7-factors-affect-your-life-insurance-quote.asp
• ^[4] https://www.etmoney.com/learn/insurance/5-things-to-know-before-buying-term-life-insurance-plan/
• ^[5] https://www.investopedia.com/terms/i/insurance-premium.asp
• ^[6] https://www.livemint.com/Money/UnFYNcPwYoZGPuQdWJioBL/Usually-the-sum-assured-in-a-term-plan-cannot-be-changed-af.html

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