Common Payment Plans in P&C insurance
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Term insurance is a basic product that is simple to follow. A term insurance policy’s coverage can be extensive, and the premium for such a policy is reasonably priced. As a result, such a product should be the backbone of any financial portfolio because it provides exceptional protection. This provides you with a high level of protection against the danger of death. It is inexpensive, and as a result, it is becoming more popular.
Here, the payment choices are one of the elements to consider when purchasing a term insurance policy. Different payment alternatives are available for insurance coverage. Consider this before deciding on the insurance that is right for you. Let’s take a closer look at the numerous payment alternatives for term life insurance, as well as their distinct benefits.
- Regular Payment Premium: This is the most recommended choice, as it entails paying the premium monthly, quarterly, half-yearly, or yearly. If you are a salaried employee, paying all of your premiums at once can be taxing. That is why making regular payments makes sense. You can also cancel the coverage if you no longer have any liabilities and believe your dependents are financially self-sufficient.
- Limited Payment Premium: This type of paying the premium for a shorter period of time while receiving the benefits of an insurance policy for a longer period of time. It is designed for two groups of people: those who have been paying premiums for a long time and those who have seen a significant increase in their income, such as someone who has been posted abroad for work for a few years or a businessman whose business has recently done well. A limited payment option is also an option for people who plan to retire before the term plan expires. Because the payments have already been paid, there is no cost associated with the insurance after retirement. Parallelly, coverage is extended for a longer period of time, including after retirement.
- Single Payment Premium: This is the less common method of paying premiums for life insurance contracts. The insured person is required to make a single, complete, upfront payment of premiums with single premiums, regardless of the length of the policy. It’s simple to believe that paying a one-time fee will save you money in the long run. When inflation is taken into account, financiers note that single premium payments can cost insured significantly more than other payment options. The single premium payment method has the benefit of preventing premium nonpayment and ensuring that the policy does not expire. People who should get single premium life insurance are those who can afford the one-time financial burden and want to protect themselves against a policy lapse.
Here I’m sharing an example for better understanding. A 30-year-old person pays an Rs.10,000 annual premium for 30 years in exchange for an Rs.1-crore payout promised. For a period of 30 years, this equates to Rs 3 lacs. A single premium on the same insurance for the same value assured, on the other hand, costs Rs 2.4 lacs. While this is smaller by Rs 60,000, inflation has a huge impact on the value of money. So, assuming a 6% annual inflation rate, a single premium of Rs.2.4 lacs would be worth Rs.13.75 lacs after 30 years of inflation. In terms of the time value of money, this means you’re actually paying a lot more for the policy. This is something you should think about and calculate before deciding which option is best for you.
Webner Solutions is a Software Development company focused on developing Insurance Agency Management Systems, Learning Management Systems and Salesforce apps. Contact us at dev@webners.com for your Insurance, eLearning and Salesforce applications.
Originally published at https://blog.webnersolutions.com on February 15, 2022.
