- February 8, 2021
- Posted by: Umesh Paliwal
- Category: Blog
Please read our first blog on Insurance, where we have discussed Life vs General Insurance.
Continuing our series to make you understand about the insurance market, in the second blog we will talk about an important term in Insurance i.e. Premium.
Premium is what you pay to the insurance company every year to cover your various risks in life. In Insurance market, we pay health Insurance premium, car insurance premium and Life Insurance premium to mitigate our various risks in life.
However, do you know, on what factors the insurance premium depends upon?
Remember one thumb rule; Premium is directly proportional to risk.
There are mainly 4 factors on which the premium of the policy depends upon.
1. Age = Young people are less risky, so the premium will be less. With increasing age, the premium will increase. So, it is advisable to buy a policy as early as possible.
2. Sex = as per the study, men are more prone to accidents and have more chances of hospitalization as compared to women. So, the premium of men is always higher than women.
3. Smoking habits = If you smoke, you have a higher risk of hospitalization, so the premium will be high. And mind you it is super high.
What happens if you lie and get away with higher premium. In Insurance, one principle is there i.e. Utmost Good Faith, this means while buying policy, the policyholder should tell each and every information correctly to the insurance company. Later on, if god forbid, if you dies due to smoking related diseases, then companies might reject your claim.
4. Location = If you live in a Tier-1 city, chances of hospitalization and accidents are more, as compared to Tier-2 cities. So, the premium of the policy is always higher in tier-1 cities as compared to tier-2 cities due to more risk.
Life Insurance (Term Plan) = Premium is fixed for life.
Health Insurance = Premium changes in 2-3 years depending upon rising in healthcare inflation