Life Insurance Corporation of India (LIC) offers a variety of insurance policies to suit different financial needs and goals. When purchasing an LIC policy, understanding what affects the premium cost is crucial for making an informed decision. Here’s a breakdown of the key factors that determine the premiums of LIC policies.
- Type of Policy
LIC offers different types of policies, including term plans, endowment plans, money-back policies, and unit-linked insurance plans (ULIPs). Each policy type has a different premium structure based on the coverage, benefits, and investment components.
Key Impact on Premium:
- Term plans have the lowest premiums as they provide pure life coverage without maturity benefits.
- Endowment and ULIPs have higher premiums due to savings and investment components.
- Sum Assured
The sum assured is the amount payable to the policyholder’s nominee in case of death. Higher coverage amounts lead to higher premiums.
Key Impact on Premium:
- Larger sum assured results in increased premium costs.
- Choosing an optimal sum assured based on financial needs can balance affordability and coverage.
- Age of the Policyholder
Age plays a significant role in determining LIC premiums. Younger policyholders usually pay lower premiums compared to older individuals.
Key Impact on Premium:
- Younger individuals are considered lower risk, leading to cheaper premiums.
- Premiums increase with age due to higher mortality risk.
- Policy Term
The duration for which the policy remains active also affects premium calculations. Longer policy terms can impact affordability.
Key Impact on Premium:
- Shorter terms have higher premiums as risk coverage is concentrated over a limited period.
- Longer terms may have lower annual premiums but can lead to a higher total premium paid over time.
- Lifestyle and Health Conditions
Insurers assess the policyholder’s health and lifestyle to determine risk levels. Factors like smoking, drinking, and pre-existing medical conditions can lead to higher premiums.
Key Impact on Premium:
- Healthy individuals get lower premiums.
- Smokers and individuals with medical conditions may have significantly higher premiums.
- Riders and Additional Benefits
Adding riders like critical illness cover, accidental death benefit, or disability cover increases the premium.
Key Impact on Premium:
- Each rider adds to the cost but provides extra security.
- Policyholders should evaluate if additional coverage is necessary.
- Payment Frequency
LIC allows policyholders to pay premiums monthly, quarterly, semi-annually, or annually. The chosen payment mode can influence the total cost.
Key Impact on Premium:
- Annual premium payments may have discounts compared to monthly installments.
- More frequent payments might lead to slightly higher total costs due to administrative charges.
- Occupation and Risk Factors
Individuals engaged in high-risk professions like aviation, mining, or construction may have higher premiums due to increased chances of fatal incidents.
Key Impact on Premium:
- High-risk jobs lead to higher premiums.
- Lower-risk jobs have standard or lower premium rates.
- Gender and Premium Rates
Some LIC policies may have gender-based premium differences, where women may pay lower premiums due to higher life expectancy.
Key Impact on Premium:
- Women often have slightly lower premiums.
- Unisex policies maintain uniform pricing for all genders.
- Inflation and Economic Factors
Economic conditions and inflation can impact the premium rates over time. LIC periodically revises premium structures based on actuarial calculations.
Key Impact on Premium:
- Inflation-adjusted policies may have premium increases.
- Economic fluctuations can influence premium adjustments.
