What Factors Affect My Investment Plans Insurance Premium?

Those who know about insurance products are conversant with the way that insurance serves the dual purpose of offering protection and acts as an instrument for saving money.

Investment plans are a form of insurance that helps you do both: receive compensation in case of untoward incidents as well as get a return on investment upon maturity of the policy. You can choose an online investment plan that suits your requirements by getting investment plans quotes from various service providers.

Here is all the information you need about the way in which premiums for investment plans are calculated and paid. This will help you make an informed decision about the insurance plan that you choose:

Various premium payment options

Life insurance policies are known as ‘term insurance’ are typically not tools for investment. These are simple insurance plans for which premiums are paid at set intervals; if the insured person passes away during the pendency of the policy, a set amount is paid to the survivor(s).

However, if you look at an online investment plan it is structured differently: premiums are paid with the promise of fixed or variable returns at the end of the policy period or at fixed points during the pendency of the policy. These fixed points are often decided based on projected life requirements such as children’s education, marriage expenses or perhaps post-retirement expenses.

Investment plans with single premium payment

This type of insurance plan is very useful for people who have a certain sum of money earned, inherited or accrued from business or any other source; and are looking for a secure place to park that amount of money. A single premium payment plan is described as a “fill it, shut it, forget it” type of plan.

Such a plan consists of a single premium payment that offers life insurance as well as a specific payout or return on investment. Here, there are no periodic or follow-up payments to keep track of. There is also no apprehension of the policy lapses for nonpayment of premium because everything required to be paid by the policyholder was paid at the point of policy initiation.

Single premium plans also offer protection against taxes. When you earn or come into a significant amount of money, the tax implications could be very significant; however, by investing in investment plans you can reduce that tax liability.

Currently, premiums paid towards life insurance policies qualify for tax deductions of up to a maximum of Rs 1.5 lakh a year under section 80 (C). However, there is some concern about taxation of the assured payout at the end of the policy term. As the rules currently read, tax benefits for maturity proceeds are tax-free under Section 10 (10D) only if the payout is ten times the premium amount (usually possible only when the policyholder is young and buys the plan early in life).

So when checking the terms and conditions of your online investment plan, be sure to read all the fine print and ask plenty of questions about the investment plans you are interested in.

Other premium payment options – There are other premium payment options for people looking to save and put away a certain amount every month, or a quarterly or yearly basis as well. In some cases, it is also possible to make payments every few years as may be specified.

Payment options can be flexible as well in some cases, so professionals and business people whose income may fluctuate from one to another year can take advantage of this. Some investment plans are available for premiums as low as Rs 100 per month or even lower.

For instance under the Atal Pension Yojna, a government scheme, a 35-year-old individual can invest just Rs.902 per month till the age of 60 to get assured returns of Rs.5000 per month.

Factors that decide premium amounts

When you look for investment plans quotes, various companies will offer quotes for the premium you would be required to pay for the insurance policy of your choice. The underwriting department of the insurance company performs various calculations and risk assessments and depends upon statistical data to decide on the amount of premium to be charged. Insurance companies consider various factors to decide on what premiums to charge:

Age, lifestyle, and habits – Sometimes called mortality charges, insurance companies assess a person’s age and life expectancy to assess risk. The rule of thumb is that the younger a person is, the lower their perceived risk is and the longer the possible duration of premium payment; hence lower premium amounts.

If you have been looking for an online investment plan, you would have used premium calculators to get investment plans quotes. These calculators will ask you about your age, BMI (body mass index which indicates obesity, obesity risk etc), habits such as smoking (which lowers life expectancy) and so on to come up with a premium amount.

Expenses incurred by the insurance provider – Insurance companies incur various expenses such as salaries paid to employees, commissions paid to agents, overhead costs, marketing or advertisement costs, and other operational expenses. These expenses are recovered from policyholders and the premiums they pay for investment plans as well as other types of insurance policies.

Investments – When insurance policies would be able to generate an income for the insured the insurers would promise fixed or flexible. Such an income is generated by investing in the stock market (equities) government bonds and securities, and other market instruments.

From the income so generated, the insurance companies are able to pay policyholders the amounts that may become due on the death of the policyholder, on policy maturity (in the case of investment plans) as well as any bonuses that may become due.

When considering an online investment plan, a policy buyer would have to self-assess their requirements as well. Based on current income and expenditure, what is the amount that one can safely afford to invest on a monthly or yearly basis?

How to Compare Investment Plans Online?

Based on one’s current lifestyle, what is the amount of income that one would require to be generated after retirement? Looking at the age of one’s children and their interests /inclinations, what is the likely amount that would be required for their higher education and when? These are some of the questions that a policy buyer should ask themselves when they are looking to buy investment plans.

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