Why are Premium Amount for Term Insurance so Low?
The ultimate goal of a term insurance is to make sure that the financial future of your family members is taken care of in the time of your untimely passing. It has also developed a reputation for being one of the most cost effective insurance schemes out there, due to the relatively lower amounts that the policyholder pays as premiums. This article will essentially list down the reasons as to why a term insurance premium is so low.
- No investment component
The money that a policyholder pays towards traditional insurance policies is divided into three main sections; cost of insurance, administration charges that are incurred and investment. This means that a part of the insured’s money is invested in the financial markets. However, that is not the case for term insurance policies. Such schemes only tend to bifurcate your money in the cost of insurance and the administrative charges.
- Your health plays a factor
Several term insurance policies require the policyholder undergo a comprehensive medical examination. The same is done so that the insurer anticipates the potential illnesses that might unexpectedly grab hold of you and determine how much at a risk are you. This will help them develop an individual risk profile for you and your family, which will determine the final premium that you will pay towards your policy.
If you receive the proverbial “clean bill of health” from the insurer or the entity that had you examined, you walk away with paying a relatively lower premium amount. Additionally, factors like past medical history (which you must disclose at the time of you applying) or reported abnormalities in your test results can inflate the amount that you may have to pay towards your term insurance policy. In some cases, the application for a term insurance policy might even get rejected as well. You could do a basic online version of the same on several portals online which have a term insurance premium calculator.
- Where you work is a factor too
The insurance executive also takes into account your place of work and the possible risks to your health if you keep working there. An individual with a desk job, for example, will have to pay much less premium on his/her term policy as compared to an individual who has to work with hazardous chemicals and/or geographic locations that naturally emit potentially dangerous chemicals/substances. People who work in the latter sectors often have to face the rejection of their insurance policy application on the part of the insurer.
- No maturity benefits
Holders of traditional insurance policies tend to receive a benefit in the form of capital returns at the end of the maturity period. The same is made possible on the part of the insurer due to the investment of a particular percentage of the premium in the financial markets. Since there is no investment component in a term insurance policy, the holder does not get any form of maturity benefits. However, if the policyholder has taken the correct add-on, or rider, as they are called, they can claim all the premiums that they have paid towards the policy on maturity.
- Policy duration
Term insurance policy premiums are also affected by the years for which the insured wants to stay covered through it. It means that a policyholder, whose insurance plan covers him/her or the family members for 30 years, will have to pay a smaller premium as compared to a policyholder whose insurance plan covers for 50 years or more. You can find out more about the term insurance premium that you will have to pay as a policyholder on several online portals that have listed term insurance policies and have a term insurance calculator.