How much to Pay for Life Insurance Policy?

The question: How much to pay for Life Insurance Policy? is frequently asked by people when agents ask them to buy policies for a high premium. A high premium definitely has high returns, but that may not always be suitable for everybody. Affordability is more important. A high premium has no purpose if it cannot be paid on time.

People tend to take extreme course for buying policies and land themselves in trouble. People buy policies for a high premium which is beyond their paying capacity or don't buy at all. Both of these are extreme decisions. Extreme decisions hamper progress and so, should be avoided.

Don't select premiums with the sole expectation of returns. Instead, select them by considering your budget. The needs analysis before buying policies often help to select appropriate plans. For this, the needs analysis have to be flawless. If a need based analysis misses or overlooks the crucial aspect of sustainability of a policy, the problem begins. Sustainability is always more important than returns. To make a policy sustainable, the premium must be within the payable limit.

You must decide your Premium.

For many people, paying premiums on time is a hard task. Over investment in a particular plan is one of the reasons why paying premiums become problematic for the policyholder. Too many policies with low premiums have the same effect. Such situations arise when the premium for your policy is decided by your agent and not by you. If your first premium is influenced by your agent, you may find it difficult to honour future premiums too. This is how policies lapse. It is therefore important to be aware of your present financial condition and calculate your future investment goals before deciding your premium. You have to decide your premium and its payment tenure on your own.

Why Agents Ask for High Premium?

Life Insurance Agents earn commission for selling policies. The more policies they sell, the more commission they get. This is the main reason why they pitch policies for a higher premium. This is not the only reason though: there are some demographic aspects too which the agent might consider before suggesting a higher premium. For example, if the proposer is nearing retirement, the agent may ask him to pay more to make him get better benefits from his policy.

When people put more money in one policy, it make them incapable for buying another. If you cannot afford to pay more, then it is better to pay less. This is a good stance for selecting affordable premium for a policy.

Life insurance policies are not just for protection, they are good for savings and investments too. When a person buys a policy with Survival Benefit, it automatically becomes his savings or it becomes an investment depending upon the amount of premium he pays. Though, there are no higher limit for paying premium, it is always advisable to go for a premium which is well within your capacity.

A life insurance premium decides the benefits the policyholder is going to get which could be either at regular intervals or at Maturity or both, depending upon the features of the selected policy. It is advisable to buy policies for specific needs, but it is not recommended to pay premiums beyond your actual budget.

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The previous post was: Human Resources and Money.

The next post is: MUTUAL FUNDS

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