Why Life Insurance Plan Premiums Vary from Company to Company


The premium payable under an insurance policy is the consideration for the coverage or benefits that an insurance company promises to the policyholder upon the occurrence of a certain event or at a specific time.

With the growing awareness of insurance, an increasing number of people are purchasing insurance policies today. However, one of the questions that often arises is: why does the price of similar offers differ from one life insurer to another? Most of the time, you can also find two similar life insurance products from the same company with different premiums. Let’s understand this in simple language.

First of all, we must understand if we compare what we like? The key factors for this include:

# Age, gender, lifestyle, profession, etc.
# Duration of premiums payable (premium payment duration) and duration of the coverage period (policy duration)
# Amount of death cover (Death Sum Assured) and amount of the survivor / maturity benefit
# When and how survivor and maturity benefits are paid
# Any additional coverage such as accidental death or critical illness benefit or waiver of premiums etc.
# Policy type – fully guaranteed (non-participating) or fully unsecured benefits (such as ULIPs) or a combination of both (such as a participating policy containing premiums).

The premium payable under an insurance policy is the consideration for the coverage or benefits that an insurance company promises to the policyholder upon the occurrence of a certain event or at a specific time. The premium for an insurance policy may also depend on additional parameters including, but not limited to gender, self and family health conditions, etc. .

The first and most important influencing factor is the type of policy or the benefits payable under a policy.
A pure term policy will be the cheapest form of insurance since a claim is only payable on death, followed by a term policy with refund of premiums where, in addition to a claim payable on death, the premiums are reimbursed if the insured person survives the period of the policy. Savings plans will claim a higher premium over term and term with premium return since it intends to pay more than the total premiums paid on survival and / or maturity.

The premium for a life savings plan will depend on the benefits, which may be fully or partially guaranteed under the policy, the cost of insurance as well as the amount of coverage (Sum Insured) and the risk associated with investment under the policy. .

The amount of the bonus may be different from one company to another for a number of reasons, some of which are defined below:

a) Benefits and premium payment period – the cost of insurance cover depends not only on the age at entry but also on the no. years, premiums are payable and the duration of coverage. If you buy a long term policy with a premium paid in, say, 5/7 years, you are paying an advance on the future and therefore the premium will be higher.

The availability of additional built-in or optional coverages, such as accidental disability or death, illness, etc., may also increase the premium payable.

b) Target segment – the customer segment targeted by an insurance company also influences the premium. Insurance works on the pooling of risks and therefore the better the quality of life in the pool, the lower the overall risk and therefore the lower the cost.

c) Underwriting standards – Your policy can be issued without a medical examination or can be issued at a point of sale (POS). Such a policy usually has a minimum subscription and therefore may result in higher premiums.

d) Duration of guarantees – The premium for an insurance policy is generally payable for a long term, say 5/10 years for a policy term of, say, 20/30 years. Since the guarantee offered is defined at the start of the policy, the insurance company will include the cost of providing such guaranteed long-term returns when calculating the premium.

e) Distribution cost – This is one of the factors that influences the price. The lower the distribution cost, the lower the premium. The online versions of the policy, if available, are a little cheaper for this reason.

The illustration of guarantees is the most important document to understand your contract and its advantages vis-à-vis the premiums to be paid. It shows a comparison between what you pay for and what you can get. While all of this is true, insurance savings plans come with an important angle: While your premiums may vary a bit, the protection they provide at your moments in life is invaluable.

(By Bikash Choudhary, Appointed Actuary and Chief Risk Officer at Future Generali India Life Insurance Company Ltd)

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