Here’s Your Step-by-Step Guide on How to Calculate Premium Without Tax

Having a life insurance policy is highly essential and is something that should not be missed out on. Having financial security for future requirements is highly important for you and your loved ones. Life insurance not only provides financial security, but it also helps you with paying off your debts, health expenses, providing regular incomes after your retirement, etc.

Life insurance policies have a major advantage of tax benefits, i.e., the premiums paid by the policyholder are tax-free, subject to certain conditions. With life insurance policies, it is important to know how to calculate premiums so that it does not create any sort of problems for the policyholder in the future. However, please note tax benefits are in accordance with tax laws and are subject to change from time to time.

What is Insurance Premium

An insurance premium is a certain amount of money that a policyholder has to pay for an insurance policy. The price of the insurance premium depends on various factors like your age, health, financial goals, the type of insurance policy the policyholder is aiming for and so on.

What is Insurance Premium Calculator?

An Insurance Premium Calculator is a tool that helps you calculate your insurance premium amount. Insurance Premium Calculator is a very effective tool for anyone who is planning to buy life insurance. While using the calculator, you will have to fill in some details that will help you calculate the premium you will have to pay for the life insurance policy you choose.

Sometimes, it becomes a hassle as to how to calculate your insurance premium without tax. Not anymore! Here’s your step-by-step guide on how to calculate a premium without tax.

Step-by-Step Guide on How to Calculate Premium Without Tax

• Step 1- Personal Details: The first step towards calculating the premium without tax is to fill in the personal details that the premium calculator will be asking you. Personal details include age, gender, whether you smoke or not, your annual income, etc.
• Step 2- Choose Your Life Cover: The second step is to fill the current life cover that the policy has assured you if you have already bought a life insurance policy.
• Step 3- Choose the Assured Amount You Want: After filling in your details and the current life cover, the next step you have to do is fill the assured amount you want to receive for the policy agreement.
• Step 4- Duration of Policy: After filling in the assured amount, fill in the duration of the policy, i.e., for how long do you want the policy cover to be. It can be five years, ten years, 50 years and so on.
• Step 5- Series of Different Plans: After filling in the duration of the policy, click the continue button. After that, you will be shown various plans that go according to your personal details and the duration of the policy you have chosen.
• Step 6- Choose Your Plan: After completing the above five steps, you can choose the plan that perfectly fits your financial needs and requirements. After choosing your ideal plan, you will be shown the premium amount that you will have to pay for the insurance policy.

 

Calculating Premiums: Essential Knowledge

Knowing your premium amount is crucial for budgeting and ensuring timely payments. Life insurance premiums depend on various factors, including:

• Age: Younger individuals usually pay lower premiums compared to older applicants.
• Health: Pre-existing medical conditions might influence the premium amount.
• Smoking status: Smokers typically pay higher premiums due to increased health risks.
• Policy type: Term insurance plans offer lower premiums than whole-life or endowment plans that provide additional benefits.
• Sum assured: The higher the coverage amount, the higher the premium.
• Policy term: Longer policy terms usually translate to lower premiums compared to shorter durations.

 

Calculating Premiums Without Tax

While some insurance company websites display premiums with and without tax, understanding the calculation is empowering. Here's a simplified approach:

1. Identify the gross premium: This is the total amount you pay for the policy before any tax deductions.
2. Determine the applicable tax rate: As of 2023-24, the deduction under Section 80C allows up to ₹1.5 lakh for premiums paid towards your own life insurance and your spouse's, depending on their age and your tax bracket.
3. Calculate the tax benefit: Multiply the gross premium by the applicable tax rate.
4. Subtract the tax benefit: Subtract the calculated tax benefit from the gross premium to arrive at the premium amount without tax.

Example:

Gross premium: ₹20,000

Applicable tax rate: 20% (assuming you fall under the 20% tax bracket)

Tax benefit: ₹20,000 * 20% = ₹4,000

Premium without tax: ₹20,000 - ₹4,000 = ₹16,000

Premium Payment Modes

Life insurance companies offer various payment options, including annual, semi-annual, quarterly, and installment payments. While convenient, remember that installment premiums typically incur an additional charge above the regular premium. Be sure to understand these charges before opting for this mode of payment.

Online Calculators: A Helping Hand

Many insurance companies offer online premium calculators that factor in your details and desired coverage to estimate your premium. These tools provide a ballpark figure and serve as a helpful starting point. Remember, consulting a financial advisor is crucial for personalized guidance and choosing the right plan for your unique needs.

Empowering Financial Choices

Life insurance is a significant investment with long-term implications. By understanding premiums, tax benefits, and available payment options, you can make informed decisions that secure your loved ones' future and optimize your financial well-being. Remember, consulting a qualified financial advisor ensures you choose a plan that aligns perfectly with your financial goals and risk tolerance.

Now, take action! 

Explore different life insurance plans, utilize online calculators, and seek professional guidance. Secure your future, embrace peace of mind, and unlock the valuable tax benefits associated with life insurance. Your financial well-being and your loved ones' security are worth the investment!