The Importance of a Good Insurance Premium

What is meant by Insurance Premium?

It is the amount required for obtaining an insurance cover, which is often paid as a colossal sum or in individual instalments till the tenure period of the insurance policy. A failure to pay a premium on or before the due date directly cancels the insurance policy which, upon payment of the outstanding amount hitherto, may be restored.

The Importance of a Good Insurance Premium

How is an insurance premium decided?

The amount of insurance premium fixed to a customer depends on the collected statistical data that exists in life history, age and health. Every customer that applies for insurance goes through the research process about their personal, financial and other relevant info

The underwriting process involves investigation consisting of clinical hospital history, analysis of reports like medical information bureau and motor vehicle reports. After analysis for authenticity, they are typically analysed by a statistician, called actuarial scientists, who are persons hired by the insurance companies.

After analysing the data, the actuary tries to predict how likely the insurance applicant will make a claim on their policy. The actuaries are also responsible for studying mathematical data and compiling “mortality and sickness” tables, which are used to predict prospective losses due to death and sicknesses. The mortality and sickness tables are basically tables that assign a probability to gender and ages about the likelihood to get sick or die.

The actuaries use predictive analysis from the researched data to determine how likely it is for a particular individual to get sick or die at a particular time, based on the data gathered for that individual. Based on the results of the analysis of data and the information generated from the mortality and sickness tables, a premium is assigned or charges to the client.

What Your Insurance Score Is and How It Is Calculated?

An insurance score is a rating used to predict the likelihood a customer will file an insurance claim. This score, as noted above, is based on an analysis of a consumer’s credit rating, and the method for calculating it varies from insurer to insurer. While many companies use proprietary formulas to calculate the scores, the factors used in the calculation include the customer’s outstanding debt, length of credit history, payment history, and amount of revolving credit versus the amount of credit in the form of loans, available credit and monthly account balance.

Why should we have a good insurance premium?

Life insurance is important if you are the sole breadwinner for your family or if your family is heavily dependent on your income. Different types of health insurance policies cover an array of diseases and ailments.

Car insurance is an important policy for every car owner. This insurance protects you against any untoward incident like accidents. Some policies also compensate for damages to your car during natural calamities like floods or earthquakes. It also covers third-party liability where you have to pay damages to other vehicle owners.

Home insurance can help with covering loss or damage caused to your home due to accidents like fire and other natural calamities or perils. Home insurance covers other instances like lightning, earthquakes etc.

Life insurance premium of up to ₹1.5 lakh can be claimed as a tax-saving deduction under Section 80C.

Medical insurance premium of up to ₹25,000 for yourself and your family and ₹25,000 for your parents can be claimed as a tax-saving deduction under Section 80D

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