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Why the Premium Amount For Term Insurance is So Low?

  10/24/18 9:37 AM

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Shiela was planning to purchase a term insurance plan for herself. But she didn’t know why the premium amount for a term plan was fairly lower than other insurance plans. She then inquisitively typed this question on google!

She was then redirected to an article on Term Insurance Plans, which was as below;

Term insurance premiums are determined by considering various factors and parameters, there are also some guidelines which attribute to its low premium.

Insurance is generally categorized as financial instruments that cover financial loss during emergencies. In the past few decades, the insurance industry has transformed at a substantial rate.

Term insurance is among the new products that are introduced by life insurance companies. Just like other life insurance plans, term insurance plans assures financial cover during emergencies such as a death of the policyholder. However, it has some terms and conditions which are a bit different from its widely known alternative. This brings us to the point, why the premium for a term insurance plan is lower than other policies?

There are many reasons which can be attributed but here are some of them

  1. Lesser bifurcations: Investment based insurance policies have high premiums because of the various bifurcations involved. The premium you pay is broken down into three parts i.e. mortality charges, administrative charges, and investment. Whereas, in term plans the bifurcation is done in two parts i.e. the cost of insurance and administrative charges.

  2. Healthy Lifestyle: When you apply for a term insurance the insurance company often asks you to undergo medical tests. They also inquire about the leisure habits of the insured like smoking and drinking. As a physically fit person has low chances of contracting illnesses and so the chances for filing insurance claims are less.

  3. No Maturity Benefits: Certain life insurance plans offer a return on maturity thus they prove to be a great option for investment. Term plans, on the other hand, provide full cover for a specified period and if an emergency occurs then the insured is paid the sum assured promptly.

  4. Duration of the policy: A basic term plan covers the insured for a specific period which referred to as ‘term’. The duration of your term plan can also have an impact on the premium amount. The relation between the premium and the duration is as such that if the duration of the policy increases the premium will also be higher and if the duration is low the premium will be lower.


Premium plays an important role in keeping your policy active over the years and since it is a constant payment, paying it should not affect your budget. There are plans like Edelweiss Tokio Life Zindagi Plus which cover you against critical illnesses, accidental disabilities, and death. It is also a plan which combats inflation by providing a top-up benefit to the policyholder.

After reading the above article, Shiela understood that a term insurance plan is the best way to ensure her family’s members security in her absence and the main reason why the premium amount is lower is that term plans are designed to solely cater to the need for protection. Life insurance industry has evolved drastically and there are different products that cater to the different needs of an individual.


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