4 mins read
Whenever you make a purchase, one of the first questions you will ask is “How much will it cost?” And as a consumer, you have a right to know how that is computed and when it will be charged. This is also true for buying insurance.
The cost of an insurance policy is called an insurance premium. This article explains how it works in simple terms, so you can make informed choices and choose the policy with the best value.
An insurance premium is the amount of money you pay for an insurance policy to get coverage. Sometimes it is billed every month, quarter, or year.
In other cases, you pay a lump sum before the policy takes effect.
Your insurance premiums are affected by the kind of insurance policy that you have.
Insurance companies may increase your premiums if you have a higher risk for injury or critical illness. Here are some risk factors:
An insurance premium quote is the estimated cost of a policy. Usually, insurance premiums have a base calculation, which the insurance company adjusts based on the information you provide.
To make an accurate assessment of your insurable risks, your insurance agent may ask for personal information, documentary requirements, and results of applicable medical examinations.
Once you get the quote, discuss the policy’s coverage, terms and conditions, premiums, deductibles, and maximum out-of-pocket costs. Feel free to ask questions, share concerns, and ask for more options. This one-on-one consultation is a great opportunity to find a policy that works for your goals and financial
Like all long-term financial investments, insurance policies are affected by economic forces and trends. Insurance companies employ actuaries, or professionals who specialize in managing financial risks. They apply different mathematical, statistical, economic and financial theories and computer science to analyze data to predict financial outcomes.
Insurance companies then use these insights to determine risk levels and premium prices, which your insurance agent will simplify and present in your insurance premium quote. This makes calculating insurance premiums much easier for people who do not have a background in Math!
That doesn’t mean you can’t take an active role in choosing the best insurance policy for your needs.
You can compare insurance quotes or ask your insurance agent to explain how much coverage you can receive for different scenarios. This gives you a concrete, practical picture of how paying insurance premiums can save you money in the long run.
Insurance premiums are easier to understand when you know important concepts like the ones below.
A: The premiums are added to the insurer’s capital, which funds your future insurance payouts when you take out your policy or death benefits to your designated beneficiary.
For variable life insurance (VUL), part of your premium may be invested to increase the value of your policy’s cash component.
A: Yes, you don’t have to worry about receiving your insurance claims. While the financial stability of the insurance company plays a significant role, you can rest assured that policy holders are always protected under law. You can make and receive claims if the policy’s terms and conditions are upheld.
A: Premiums rarely change within any given year or term, except for certain scenarios like converting term insurance to life insurance or renewing your policy. In these cases, the insurance company must recalculate your premiums based on current industry or market rates or personal factors.
A: The solution depends on the type of insurance you have. For term insurance, you’re entitled to a grace period where you can make up for missed payments and bring your account back to good standing.
For whole life or permanent life insurance, your insurer may tap into your policy’s cash or investment value and use it for missed payments
A: It depends. Policies with more comprehensive coverage will generally have higher premiums, but your premiums can be affected by other factors like your age and whether your employer is subsidizing part of the plan.
The word “better” is also subjective. People have different needs, health risks and financial goals, so their insurance plan may not necessarily work for you. So, you may get clearer answers if you tell your insurance agent about what you’re looking for, then ask for quotes for different plans.
A: That depends on your insurance provider.
BPI AIA has many convenient payment options. You can pay through My AIA, BPI online and even remit from abroad. Paying insurance premiums has never been easier!
People often associate a “premium product“ with superior benefits and service — and you can certainly expect that from insurance companies like BPI AIA. However, that is not what the word means in the finance industry.
The term "premium" dates to the 17th century and is derived from the Latin word "praemium" which means reward or profit. This captures how your monthly insurance payments can bring important benefits such as risk protection and financial security. It may take time before your policy’s cash value grows, or even before you need the medical benefits.
However, when you grow older or when you experience an emergency, you will see how your premiums (or payments) yielded premiums (or rewards).
Now that you have a clearer idea of what an insurance premium is, the next step is to find the plan that gives you the best value for your money.
You may have questions on how to choose a plan for your needs, how your personal risks can affect your policy, or even what kind of insurance you can afford with your current budget. We can help!
Schedule a personal consultation with our Bancassurance Sales Executives and find the most suitable life insurance policy for your needs.
Sign up to get weekly financial tips to grow your wealth.
First name is required
First name is required
Last name is required
Last name is required
Mobile number is required
Please enter only number
Invalid mobile number length
Email address is required
Email address is required
