“Beware of little expenses. A small leak will sink a great ship.”
You can stop scratching your head now ‘cos we’re going to tell you who said that.
Why, it’s Benjamin Franklin, of course!
Franklin could have as well been talking about spending on insurance policies.
On an annual basis, the difference in premium between a policy costing Rs 12000 and another costing Rs 14000 may not look very substantial. However if you look at it over the long term, this little extra expense can work out to be quite high. Assume that you take a term cover for 30 years with an annual premium of Rs 14000. You will be paying an additional Rs 60000 compared to another policy costing Rs 12000 having the same features.
So why will anyone pay a higher amount for their policy? Definitely not willingly! Let’s look at 5 things that can make your policy costly.
Buying late?
The later you purchase insurance, the more it will cost. The premium for most insurance policies is linked to the age of the policy holder. Therefore when you delay purchasing an insurance policy, you will be forced to pay a higher amount. This is because the higher the age of the policyholder, the higher is the risk perceived to be associated with the individual.
Insurance is a cover against risk and therefore insurance companies usually attach a risk premium for a higher age. This is the reason your insurance premium increases with age. It is always better to have the necessary insurance covers in place at the earliest.
Afflicted with a lifestyle disease?
Another reason why your premium may be more is because of the presence of lifestyle diseases. As the name suggests, these diseases occur due to improper diet and poor lifestyles.
Obesity, depression, osteoporosis, type 2 diabetes and heart diseases are some instances of lifestyle diseases. Consumption of alcohol and tobacco, leading an inactive life and eating high calorie food are some causes of lifestyle diseases.
Although not all lifestyle diseases can result in an increased premium, insurance companies will treat you as a high risk patient if you have a lifestyle disease. That said, it is important to disclose all relevant facts at the time of signing up for the policy, in order to rule out the possibility of a claim being rejected due to concealment of material facts.
Purchasing policy without comparing?
A common reason why you end up paying a higher premium is when you purchase your insurance policy without comparing it with other similar products in the market. Sometimes the features of two policies are identical, but one may be more expensive simply because risk is measured more stringently.
Compare all relevant features and then make your choice of policy. You could visit the individual websites of insurance companies or talk to your agent to understand the difference. Third party online websites also allow you to compare various policies before you decide your purchase.
Purchased add-on cover?
Add-on covers or riders can increase the cost of the policy. Although riders or add-on covers offer you additional protection for the price paid, you need to check if there is a cheaper alternative. For example, a critical illness rider with your basic health policy may be making your premium more expensive by Rs 2000 every year.
On the other hand if you purchase a standalone critical illness policy, you may have to spend a lower amount for the same amount of cover you receive from the rider. Further, if you opt for riders, the sum assured coverage you get may be lower than the cover on your base policy. Therefore, it is important to evaluate if you really need the add-on cover or if it will be just an extra cost for you.
Doing a risky job?
Some policies are offered based on your occupation. An occupation with a higher risk carriers a higher premium. Personal accident insurance is a good example for this. For example, for the same amount of insurance cover, the premium charged from a mine worker will be significantly higher than that charged from an accountant, as a mine worker’s job is riskier than that of the accountant.
Nobody wants to pay a higher premium. While sometimes you do not have control over the higher premium you pay, in many cases this can be avoided by being more cautious and disciplined.
So, go forth, make Franklin proud!