Hi everyone! On negarinfo and in this post we are going to talk about “which of the following is the most expensive premium mode overall”
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What Is Mode of Premium?
When you purchase life insurance, you agree to pay a specific sum of money, or premium, to the insurance provider at regular intervals. The frequency or period of your payments depends on your mode of premium. Most insurance providers offer several modes of premium, the most common of which come annually, semi-annually, quarterly, or monthly.
Understanding Mode of Premium
Policyholders select their mode of premium when they sign their policy. It is common practice to make your first premium payment to activate the coverage on your policy. The insurance agent should highlight the possible frequency of premium payments before you sign your policy.
Many insurers allow policyholders to change the mode of premium to a higher or lower frequency during the life of the policy. Dates of change normally coincide with pre-existing payment dates, meaning if you want to change from a semi-annual to a monthly premium, then you will likely make your first monthly payment on the date of your next scheduled semi-annual payment. The payment schedule would switch to monthly from that point forward.
What Are Premium Payments?
Let’s meet Sally, who plans to purchase life insurance. Sally’s agent indicated that she has flexibility when it comes to how often she pays her policy premium. Premium payment represents the cost of the insurance policy and Sally wants some advice on which policy to select, how often to pay her premium, and policy provisions. Let’s see if we can help her.
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Modes of Premium Payment
Mode refers to the frequency with which a policyowner makes premium payments. If Sally decides to purchase insurance, she could pay her premiums:
An annual payment would require Sally to pay her premium once a year. This would be the most affordable option for her, since the insurance company wouldn’t spend as much time and money processing payments. While this option would be best from a cost perspective, Sally would have to determine if she can afford to pay this premium all at once.
If Sally chose a semi-annual payment, then she would pay her premium every six months (twice a year). Her premium payments would be a bit higher than if she chose an annual payment frequency, but it might be easier for her to budget for two smaller payments instead of one larger one.
A quarterly payment would require Sally to make a payment every three months (four payments a year). Sally would find it easier to budget for four smaller payments, but her policy premium would be higher.
A monthly payment would require Sally to pay a premium every month (twelve times a year). This option would be the best for Sally’s budget as she would pay a smaller amount every month. However, it would likely have the highest policy premium, since the insurance company would need to process these twelve payments per year.
Types of Insurance
Sally also has to decide whether she wants flexibility over the premium amount she pays. For example, she could select a level-premium policy or a flexible premium policy. Let’s take a look at each of these policy types.
If Sally wants to keep her premium the same throughout the life of the contract, she would select a level-premium insurance policy. For example, if Sally purchased a 10-year level-premium policy, she would pay the same premium amount for all ten years. At the end of the term, she would have to decide whether she wants to renew her coverage. Her premium would likely rise at the time of renewal, as she would be older.
Since it is a type of term insurance, a level-premium insurance policy would only pay a death benefit when Sally dies and would not give her any opportunities to save money within the policy.
Flexible Premium Insurance
If Sally wants flexibility over her premium amount and frequency of payments, she could select a flexible premium policy. This type of policy provides a death benefit, but it would also allow Sally to save money within the policy. In addition, Sally would have an opportunity to change the face amount of the policy or the amount of death benefit the insurance company would pay, as well as the amount of her premium and the payment period.
One advantage of this type of policy is that it would allow Sally to alter the policy as her life circumstances change. For example, if Sally were to have children, she could increase the face amount of the policy without having to apply for and be approved for an additional insurance policy.
Why Choose Life Insurance Plans?
A life insurance policy helps you safeguard the financial interests of your family when you are not around. Millions of people buy life insurance for reasons that are often difficult to put into words. It forms a crucial component of a sound financial plan because of the following benefits:
1. Financial Protection for Family
A life insurance policy will provide a specified sum to your family (the chosen nominee) at the time of your untimely demise. They can use the sum assured to fulfil various financial needs.
2. Critical Illness Benefit
You can opt for critical illness rider with a life insurance policy, which offer protection against critical health ailments, such as cancer, kidney failures, and cardiovascular issues. This way, you or your family need not worry about the financial side of medical emergencies.
3. Tax Deductions
The premium you pay for a life insurance policy is eligible for tax deductions up to Rs 1.5 lakh under Section 80C of the Income Tax Act, 1961.
4. Peace of Mind
With the best life insurance policy by your side, you get peace of mind, knowing that there is a financial safety net your loved ones can bank upon after you.
5. Extensive Coverage at Low Cost
insurance companies offer significant payouts for life insurance (like term plan) at a low premium, depending on your age and health condition.
6. Opportunities to Create Wealth
Life insurance plans like ULIP (Unit Linked Insurance Plan) gives you the benefit of life cover along with market linked returns from your investment.
7. Financial Planning for Life
Along with providing financial support against the event of untimely demise, life insurance plans also work as long-term investments to meet various goals in life. By investing in life insurance at the right age, you can plan well for different life stages.
8. Planning for your Child’s Higher Education
Saving money for your child’s education might be one of the biggest priorities for you, being an Indian parent. By investing in the best life insurance policies, you can plan for your child’s future and help him secure various educational milestones in life.
9. Assured Income for Retirement
Life insurance is a financial instrument that you can choose to plan for retirement. The steady payouts it can offer in the form of annuities can become the source of income for your retired life.