So, you’re looking to buy an insurance policy? A prudent choice! That being said, there are a bunch of complicated terms and jargon in the insurance industry. One such term Is an insurance premium. So what is an insurance premium? This article will aim to clear all doubts that you may have on the subject and help you leave this page with complete clarity. So, let’s dive in!
An insurance premium is a fee that the insurance company takes to cover the risks of a policyholder. The concept of the insurance premium is universal. It is the same across all kinds of insurance policies like life, health, fire, motor, marine, etc.
Now, why would you be willing to pay a premium to an insurance company? The simple answer is that they are covering you against certain predefined risks. Let’s say you’re traveling abroad and are worried about getting sick while on the trip. This is where a travel insurance policy comes in. An insurance company will (for a premium) provide you a travel insurance policy that will help pay for any hospitalization costs that you may incur while abroad.
Let us further solidify the concept of an insurance premium with the help of a couple of more examples.
Let us say Mr. Ram has taken a life insurance policy worth 50 lakh Rupees from HDFC Life. For Mr. Ram (or his heirs) to avail the benefits of his life insurance policy will have to regularly pay his premium until his policy matures or he passes away.
Let us assume that Mrs. Meena has taken a health insurance policy worth 10 lakh Rupees from HDFC Ergo. She will have to ensure regular premium payment for her to be covered against any hospitalization charges in the future. If she fails to pay her premium even after the premium grace period, her policy benefits will lapse.
Let us assume that Mrs. Sheela has taken a Motor insurance policy for her new Honda Accord. It is mandatory for her to purchase a motor insurance policy under the Motor Vehicles Act. A motor insurance policy can either be third-party or comprehensive. The policy will cover risks against accidents and Mrs. Sheela will have to pay a premium to the insurance company for bearing this risk.
Premium payment: It is very important to pay your insurance premium on time, to ensure continuity of benefit. If for any reason you have failed to pay your premium on time, it is critical that you pay it within the grace period.
Flexible premiums: Premium payment can be flexible. A company will generally accept premiums yearly, half-yearly, one time premium (for certain policies), monthly, etc.
Premium discount: Many companies provide discounts on premiums if you decide to make premium payments for 2 or 3 years in advance. The discounts range from 10-20%.
Tax benefit: The premium that you pay has a tax benefit that is attached to it. Premiums are tax-deductible under sections 80C & 80D of the Indian Income Tax Act.
Are you looking for a new insurance policy or a policy renewal? Reach out to us and let us assist you.