Premium

Premium is the amount of money that an insurance policyholder pays to the insurance company at regular intervals (monthly, quarterly, half-yearly, or annually) in exchange for the risk coverage provided by the insurance policy.

It is the cost of insurance. The premium amount is determined by the insurance company based on the risk being covered, the policyholder's age, health condition, occupation, and the sum assured. What is a Premium? If you buy a term life insurance policy with a sum assured of ₹1 crore for a 30-year-old non-smoker male, the annual premium might be ₹8,000 to ₹15,000 per year depending on the insurer and the policy terms. A health insurance policy for a family of four (self, spouse, and two children) might cost ₹20,000 to ₹50,000 per year depending on the coverage and the insurer. The premium amount is directly related to the risk covered. A younger, healthier person pays a lower premium for the same sum assured because the probability of a claim is lower. A 25-year-old might pay ₹5,000 per year for a ₹1 crore term policy, while a 45-year-old might pay ₹20,000 per year for the same ₹1 crore cover. Smokers and individuals with pre-existing medical conditions pay higher premiums due to elevated risk. Insurance premiums in India can be paid in different modes: annual (once a year), half-yearly (twice a year), quarterly (four times a year), or monthly (12 times a year). Most insurers offer a discount (typically 2% to 8%) for annual premium payment compared to monthly instalments because the processing cost is lower for annual payments. Under Section 80D of the Income Tax Act, health insurance premiums paid for self, spouse, dependent children, and parents are deductible from taxable income — up to ₹25,000 per year (₹50,000 for senior citizens). Life insurance premiums under Section 80C (up to ₹1.5 lakhs combined with other 80C investments) are also deductible. The GST on insurance premiums (18% on life insurance; 18% on general insurance) is not separately deductible. For motor insurance (which is mandatory in India), the premium depends on the vehicle's age, cubic capacity, location, and the driver's history. A comprehensive car insurance policy for a new Maruti Swift in Delhi might cost ₹20,000 to ₹25,000 per year, while the same car in Mumbai might cost ₹22,000 to ₹28,000 due to higher third-party risk and flooding risk in Mumbai. Not paying the premium on time can lead to a lapse in the policy. Most life insurance policies have a 30-day grace period after the due date. If a premium is not paid within the grace period, the policy lapses and the death benefit is no longer payable. Some policies have a "paid-up" value — after a minimum number of premiums are paid, the sum assured reduces proportionally instead of lapsing entirely. Always set reminders for premium due dates to avoid accidental lapse.