Cost Comparison of Various Life Insurance Policies
The cost of a life insurance policy is determined by a number of factors. These factors are as follows:
• The type of insurance being applied for; for example- whether term or whole life
• The amount of insurance sought
• The age, health, sex, and lifestyle of the applicant
• The cost the insurance provider incurs
The purpose for which insurance is sought is one of the most important criteria’s determining the cost of various life insurance policies. An insurance policy that is being applied for as a means of security or safety attracts a lower charge. Term insurance policies are an example of pure risk insurances. The applicant or holder of the insurance policy is provided with an insurance cover but is not reimbursed any of the amount when the policy period expires.
On the contrary, a whole life insurance policy provides for security cum investment. Whole life insurance policies generally pay back a predetermined summon maturity. As the name suggests, the applicant’s policy is for the entire life of the applicant or up to maturity. They are; therefore costlier.
The insured amount also affects the premium payment. Applicants are advised to calculate a realistic figure of their financial obligations as an over estimation can increase the amount of premium charged.
The algorithm that is applied by insurance providers to calculate a premium amounts gives considerable weight to the age of an applicant, as age determines the likelihood of death. A fit young man will be charged a lower premium amount as compared to an ailing old one. Age may also determine whether or not a medical test is necessary, as it may be waved off by the provider for certain age groups.
Another important factor to take into account is the cost-to- -benefit ratio. Term insurance policies generally guarantee a larger payout amount in case of death or incapacity as opposed to a whole life policy. This is especially true when comparing premium rates. A whole life policy that has an equal pay out amount to that of a term insurance policy will be much more expensive in terms of payment. However, it is important to note that in case of a term life insurance policy, no amount is refunded at the end of the term. They are purely a means of financial security.
All types of policies benefit from tax relief as the amount paid as premium, to some extent the payout amount, and the reimbursed amount on maturity are granted tax exemption.