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Jul 31

Types of Life Insurance Premiums

Life insurance coverage requires the insurance policy holder to make payments in consistent intervals.

Life Insurance Senior LeadsThis payment made towards the insurance coverage is called premium payment. Insurance premium payments have several different patterns of payment. Depending on the pattern of payment, these payment trends work differently. When signing up for a life insurance cover, it is important that the insurance policy holder understand these premium payments and their payment trends well. A good way to explain the concept of premium payments would be to compare them with the regular efforts that need to be put in to achieve your goal.

As long as you have even a minimal level of imagination, insurance is an easy concept to understand. Let’s use an example. Think of your life insurance coverage as the jar or the piggy bank in which you collect money. Now the coins that you put into the jar or the piggy bank are the same as the premium payment that you pay to receive life insurance coverage. When the piggy bank becomes full, then the total sum of money in the jar or the piggy bank is the same as the cash value of the policy value of the insurance life cover.

If you can relate the concept of the piggy bank to a life insurance cover, then you will be able to easily understand how premium payments work. In a piggy bank, coins and money need to be deposited regularly. Similarly, in the case of life insurance, premium payments would need to be regularly deposited to receive insurance coverage. However, with life insurance cover, the premium payments are set at particular amounts and have to be paid regularly at a pre-determined frequency. For a certain period of time, premium payments will need to be paid regularly to keep the insurance valid; if payments are not paid then the insurance policy could become invalid. In the case of the piggy bank deposit, the time duration for which these deposits have to be made is not fixed. It depends on how many coins or how much money you put in over days, weeks and months. The amount being deposited could vary over time. The piggy bank’s capacity determines the amount or number of coins that it can hold and determines when the piggy bank would become full. This is the same concept which one can follow in order to understand more about the life insurance cover.

The amount that you pay regularly as premium payments towards the insurance cover will determine the final policy value of the life insurance policy.

Again, the time duration for which you have to keep paying the premium payments will be determined by the amount of premium that you decide to pay. The frequency of premium payments will determine the maturity date of the life insurance coverage. Similar to the concept of piggy banks, you need to decide how your policy should be shaped up based on your premium payments. However, the piggy bank example cannot be applied to every aspect of the life insurance plan. One aspect where the piggy bank example cannot be applied is default on premium payments. With piggy bank, there is no default or penalty if premium payments are not paid. However, with life insurance cover, missing out on premium payments could have minor repercussions or even major repercussions depending on the default.

  • The final outcome will depend on the kind of default on the premium payment in addition to terms and conditions that a part of the insurance policy. In certain cases, premium defaults could lead to a fine that would need to be paid. However, if there are major defaults, then the fines that need to be paid might end up being steep. In certain cases, policy holders might also end up forfeiting the entire policy. This is why individual policy holders are always advised to pay their premiums on time.
  • If you foresee that you might have to make a default in premium payments, then there are two things which you could do to avoid losing your insurance policy. The first thing you could do is to talk to the insurance provider to see if there are easier payment methods which might work for you. Most insurance providers are pretty reasonable and they will be willing to listen to your issues. If insurance providers turn out to be unreasonable, then you can cash in your life insurance coverage early. This way you would not have to lose all the money which you had already paid up so far as premium payments.