5 Important Things to Know About Paying Life Insurance Premium
Buying a life insurance policy is an important investment to provide your loved ones with financial security, even when you are not around. Read on to know a few important things about paying the life insurance premium.
Having a robust life insurance cover has become a necessity for all. Today, many insurance companies and insurance aggregators offer a wide variety of policies to suit the needs of the customers and each of these policies have a different premium. The life insurance premium is essentially the price you pay to buy the policy. While choosing the right insurance policy, not many people understand the significance of the premium. Also, not many people know about the different aspects of premiums like what are the different types of life insurance premiums? How often do you pay the premium? What are the tax benefits available? Having this basic knowledge is essential to be able to choose the right insurance policy.
Let’s look at the critical things you must know about life insurance policy premium payment.
Discounts Based on the Frequency of Premium Payment
Depending on the type of life insurance policy you buy, insurance premium payment can be done on a yearly, half-yearly, quarterly or monthly basis. However, you must know that the insurance companies increase the premium amount based on the periodicity of the payment. So, if you choose to pay monthly premiums, it would be higher than the one-time annual payment. On the other hand, if you pay the premium in one go, the insurance companies, offer an attractive discount, which in insurance terms is known as the rebate. The rebate in the annual premium is adjusted in the premium amount payable.
Additional Premium for High-Risk Policy Holders
For policyholders who do not carry any risk, the insurance companies charge the usual premium rates. However, for people who carry additional risk such as health ailments, the insurance companies charge an additional premium. Also, sometimes, the additional premium is charged when the policyholder is involved in a risky/hazardous occupation. Lastly, if you opt for additional riders along with the basic policy, you would have to pay an additional premium.
Rebates for Online Payment
The insurance companies incur a certain servicing cost every time you pay the premium; the servicing cost for life insurance policy premium payment online is lower as compared to offline payment. So, when you pay the premium online, the insurer saves the commission paid to the agents. The insurers pass this savings to the policyholders when they pay the premium online.
Non-payment of Premium
If you fail to pay insurance premium online before the due date, the policy will lapse and you will not get any benefits. However, most insurance policies provide a ‘grace period,’ which is essentially an extension of the due date to pay the premium. You can pay the premium during this grace period without incurring any additional charges and keep the policy in force. If you pay monthly premiums, for all types of life insurance policies, except term insurance, the grace period is 15 days. For yearly, half-yearly and quarterly mode of payments, the grace period is 30 days.
Tax Benefit on Premium Payment
Under Section 80C of the Indian Income Tax Act, the premium you pay for the life insurance policy is eligible for deduction. However, the deduction is applicable only for the premium you pay for the policy taken towards protecting yourself, your spouse and your children.
Knowing the advantages of paying the premium online or what are the tax rebates available, will greatly help you choose the right mode of payment and reduce your tax burden.
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