Term Insurance Calculator: What is it and how it works?
Term Insurance is one such life insurance that is inevitable to include in your financial portfolio. It offers financial security for your family when you are not with them, helping them to be financially independent.
Like other insurance policies, in term insurance also you need to pay premium against the insurance coverage for a fixed period of time. But before the term insurance policy, you need to be sure about the coverage amount and the premium that you required to pay. The premium amount should be affordable enough for you so that you can continue it for the entire policy tenure. Therefore, you need to calculate the same as per your age, income, and other factors.
To calculate the premiums of your policy, you can use term insurance calculator available online. But what actually is a term insurance calculator, and how does it work?
A term insurance calculator refers to an online calculator that helps in computing the premium cost you need to pay for your policy. The term insurance calculator considers various factors like age, occupation, medical history, lifestyle habits, sum assured, premium payment frequency and policy term, etc., and then determine the premium. The calculators are readily available on almost all insurance websites. Hence, you can use specific calculators offered by various insurers to evaluate the premiums of the term insurance policies they offer.
While using the term insurance calculator, you need to provide all these details including, the insurance coverage, tenure, occupation, habits, premium payment frequency (as mentioned above) and more to determine the premium rate. Once you decide upon the premium rate and the term plan, you can buy the policy online.
Let’s understand in detail how these factors affect the calculation of the premium.
|Factors||Effect on premium|
|Age||Lower the age; lower will be the premium cost and vice versa.|
|Insurance coverage||Higher the insurance coverage, competitively higher will be the premium.|
|Mode of Occupation||If you are involved in a high-risk occupation, the premium will be high.|
|Medical background||In case of any medical history, the premium will be on the higher side.|
|Lifestyle habits||Premiums increase in case of lifestyle habits like smoking, drinking etc.|
|Physical build||The premium will be high if you are overweight or underweight.|
|Policy Term||The longer the policy tenure, lower will be the premium|
|Premium payment term||In case you pay the premiums throughout the term of the policy, then the premiums are low whereas single premiums and limited premiums are higher.|
|Premium payment frequency||Premiums paid annually or half-yearly are lower compared to premiums paid quarterly or monthly.|
There are different types of calculators available online due to the presence of varying term plans. Here are the details about various term life insurance policies and their respective calculators:
- Increasing term insurance: In this type of term plan, the insurance coverage amount increases every year by a fixed percentage while the premium remains constant. The premium is calculated, keeping in mind that it would cover the increasing cost of coverage. Therefore, for increasing term insurance policies, some separate calculators are used to evaluate the premiums considering the rising coverage cost.
- Decreasing term plans: As the name suggests, decreasing term plans are opposite to the increasing term insurance policies. As per this insurance policy, the sum assured amount reduces every year. Generally, these policies are offers along with the loans to cover the decreasing liability. This kind of policies also requires separate calculators to calculate the fixed premium that is payable each year with a decreasing sum assured.
- Level term plans: This type of term plan is simple, wherein the insurance coverage amount does not change with the change in the duration of the policy. To calculate the premium of the level term plans, you need a basic term insurance calculator.
- Return of premium plans: In this form of term insurance, the premiums paid are refunded when the policy gets matured, and the insured survives the policy term. To calculate the premiums for this, you need a return of premium term insurance calculator as the premiums are comparatively higher than the pure term plans.
Advantages of term insurance calculators
A term plan calculator is essential before you buy a policy as there are several advantages of using it –
- The calculator helps in estimating the correct amount of premium payable. Hence, you can assess whether you can afford the term insurance policy before buying it.
- You can compare the premium cost of different term insurance policies.
- The calculator is completely free of charge.
- The term insurance is dynamic in nature wherein the premium gets changed if the coverage amount or the policy term is changed.
Apart from insurance companies, there are various online platforms like BimaKaro.in that offers term insurance calculator to calculate the policy premiums. BimaKaro.in is an insurance aggregator and has partnered with top insurance providers in India, offering their term insurance plans for comparison. You just need to enter specific details, and then you will be able to compare different term insurance plans and their premium costs. It does not only tell you the premium cost but also suggests the right coverage for you based on your income and other factors.
Term life insurance is a necessity to protect your family financially in case of your untimely death. Therefore, plan to purchase term insurance at the earliest. However, before you buy a term plan, do compare the premiums using a term insurance calculator to find out exactly how much you need to pay and whether you will be able to afford it or not.