FACULTY OF LAW, JAMIA MILLIA ISLAMIA

ASSIGNMENT ON:

PREMIUM

NAME- Vinay Sharma

BA-LLB (Hons) Regular

Semester – X, Roll No:69

Submitted To: Prof. Faizan-ur- Rehman

1
 INDEX

S.No. List of Contents Page No.

1. ACKNOWLEDGEMENT 3.

2. INTRODUCTION 4.

3. INSURANCE PREMIUM 4.

4. FACTORS THAT AFFECT THE PREMIUM 4.

AMOUNT

5. CALCULATION OF PREMIUM 6.

6. TYPES OF INSURANCE PREMIUMS 6.

7. MODES OF PAYING PREMIUMS 8.

8. BIBLIOGRAPHY 10.
 ACKNOWLEDGEMENT

In performing this assignment, I had to take the help and guideline of some respected persons,
who deserve my greatest gratitude. The completion of this assignment gives me much pleasure. I
would like to expand my deepest gratitude to all those who have directly and indirectly guided
me in writing this assignment.

Many people, especially my classmates, have made valuable comment suggestions on this
proposal which gave me an inspiration to improve my assignment. I thank all the people for their
help directly and indirectly who have helped in completing this assignment.
 INTRODUCTION
Understanding ABC's of Insurance is at the wit’s end for most of us as this is not just a topic for
discussion, it is an entire subject that only experts understand. But Insurance as a service is not a
rarity and every second person owns an insurance of some kind. This brings up an important
question to the surface that when Insurance is commonly bought, then why not most of us are
very well aware of this subject. Let us face it, the reason for the majority of insurance owners
being not aware enough about the subject is the lack of interest to dive into the details.
Fortunately, today in this discussion, we are going to talk about one of the most common and
important aspects of any insurance i.e. premiums. I will discuss the premiums in details
discussing its types, how it is determined for an insurance policy and a lot more.

Premium has multiple meanings in finance, with the first being the total cost to buy an option. A
premium is also the difference between the price paid for a fixed-income security and the
security's face amount at issue. Finally, premium is also the specified amount of payment
required periodically by an insurer to provide coverage under a given insurance plan for a
defined period of time.

WHAT IS INSURANCE PREMIUM?

In its simplest form, the Insurance premium is the cost of your insurance policy. it is the amount
that you pay to your insurer in exchange of which you get the policy coverage. You can choose
the insurance policy based upon the coverage and policy period like term insurance plan or
annuity plan or mediclaim but the priority factor that will help you zero in on a choice will the
premium that you will have to pay for the insurance.

Factors that affect the premium amount

PERSONAL INFORMATION

Any insurance agent will always ask you for your personal information before giving you the
options for any types of insurance policy. This information includes your age, location, habits,
daily commute, annual income, family size etc. this information helps the insurance companies
to decide your probability of making claims. These days many companies are making use of the
scoring system where based upon your personal information, you get a score and based on that
score you get your personalized catalog of term insurance plan or health insurance plans or
whatever you’re looking for. Every insurance company has a different criterion for processing
personal information and thus, they have different premiums.

TYPE OF COVERAGE

The best way to understand the type of coverage is to consider it as an a-la-carte system where
the more coverage you include in your insurance plan, higher is the premium that you would
have to pay for that coverage. For example, you want to buy a term insurance plan, now the if
you increase the policy period, then you would have to pay a higher premium accordingly.

AMOUNT OF COVERAGE

One of the insurance terms that is known to almost everybody is the sum-assure or the cover. It is
one of the first things that come to mind whenever the topic of insurance comes up. The
relationship of sum-assure and premiums is quite straightforward, the higher is your sum-assure,
higher would be the premium you will be paying. Now, this can be done in exactly a couple of
ways both of which are mentioned below.

 The first one would be the straightforward one according to which higher the amount of
cover, more is the premium without any adjustment in other aspects of the insurance
coverage.
 This one is quite a workaround for getting a higher cover without having to pay more
premiums. Let us understand it with respect to a car insurance, making your excess
higher would get you lower premiums without decreasing your cover. Excess is the lump
sum amount that you pay while purchasing a car insurance. now, every type of insurance
has something related to excess and thus, this method works for every insurance in the
market.
COMPETITION

Every insurance company wants to attract most of the customers and thus, in order to do this, the
companies keep the premiums of their plans competitively priced. Not only this, another
interesting facet of competitive pricing is that it needs to be initiated just by one company and
then, many other companies will bring the prices of their plans down in fear of losing their
customers.

WHO CALCULATES THE PREMIUM?

Nobody but the insurance companies know exactly how the premiums are calculated and
therefore, in this section, some basic information about who are the people who decided the
premiums and how do they do so would be mentioned.

Actuaries is the position in the insurance companies, people assigned on which are responsible
for determining the premium for insurance plans ranging from the basic ones like term insurance
plans to the not so popular yet complex ones like D&O liability insurance. They are responsible
for performing risk assessment and eventually, financing out the probability of a claim to be
made considering a lot of factors.

Types of Insurance Premiums

BASED ON THE PREMIUM PAID

While purchasing an insurance for whatever purpose, you get a choice for whether you want to
pay a fixed premium till the end of your policy’s maturity period or you want some flexibility.
Based on this, the following are the two types of insurance premiums.

LEVEL PREMIUM

This is the basic form of premium where the policyholder has to make fixed payments till the
end of policy maturity period. There is nothing much in this to learn.
FLEXIBLE PREMIUM

This is where it gets a bit complicated. If you choose flexible premiums, then you get the option
to make certain changes in your insurance policy in the future like you can change the face
amount to increase the number of people covered under a term insurance plan or you can
increase the sum assured. According to the changes made in the policy, changes in the premium
amount to be paid will get implemented.

Life Insurance Premiums

Life insurance offers cover against the death of the policyholder or any mishap to the family of
the policyholder along with some saving benefits depending upon the type of life insurance
chosen. The factors that affect the premiums paid for life insurance include the age of the
insured, his annual income, assets owned, debts, health information etc. the simplest form of life
insurance is the term insurance plans because it doesn’t include any saving benefit at all and
provide cover for only the policy duration.

Health Insurance Premiums

Health insurance provides cover for the medical expenses, hospitalization, illness treatment,
surgeries of the insured. It even includes regular free medical checkups. Now the factors to be
considered under this insurance are pretty simple and all of them arise out of just one number
that is your age. Higher is your age, more will the premium to be paid for the health plan. other
factors that are important are pre-existing health conditions, family size if you are looking for a
floater plan, income and the type of coverage.

Car Insurance Premiums

Car insurance is broadly of two types third-party and comprehensive. Third party car insurance is
the basic form and is mandatory to have while the comprehensive insurance provides coverage to
you and your car. Your car model, daily commute, car condition, age of the driver, Anti-theft
gadgets installed in your car or not etc. one thing to keep in mind while buying a car insurance is
that both the types of car insurance are important where the third party is necessary to provide
you cover against an accident or damage to the third party and the comprehensive insurance
provides cover for the damage to you and your car maintenance.

Travel Insurance Premiums

Travel insurance provides you benefits of both the health insurance and life insurance but only
when you are traveling. The factors to be considered in this case thus would be a combination of
both these insurance including others like the place of travel i.e. abroad or domestic, cover to be
provided, type of coverage etc.

MODES OF PAYING YOUR PREMIUMS

Payment of insurance premiums can be made in various modes and by the way, Mode indicates
the frequency of paying the insurance premium in a year. let us look at all the different modes of
payment below:

MONTHLY

For monthly premiums, the amount would be least and easy to afford on monthly basis but the
downside with monthly premiums is that the insurance policy would cost you most this way.

QUARTERLY

Four payment per year, the amounts are quite affordable and the policy, in the end, would cost
you lesser than the case of monthly premiums but more than the cases of both semi-annual and
annual payment methods.

SEMI-ANUALLY

In this case, two payments will be made for premiums in a year and the cost would be more than
paying annually but way less than if you go for monthly premiums. Also, the amount to be paid
will be higher than both quarterly and monthly payments.
ANUALLY

Under Annual payment of premiums, you would be paying only once a year but the amount
would be significantly high than like monthly or quarterly payment but at the same time, the cost
of the policy to the owner would be least.

So, the trend can be easily observed that higher the frequency of your premium payments, more
is the cost of policy but the lesser is the amount to be paid in one installment.
 BIBLIOGRAPHY

PRIMARY SOURCE

The Insurance Laws Act, 2015

SECONDARY SOURCES

Books

1. Jain, Rajiv, Insurance Law and Practice (2nd ed.2006)(Vidhi Publishing Ltd., New
Delhi).
2. Madhyastha, P.S., S. Balchandran, et.al, Legal Aspects of Life Insurance,(Reprint August
2006)( Insurance Institute of India. Mumbai)
3. L. C. Goyle: Law of Banking and Bankers, Eastern Law House, New Delhi.
4. M. L. Tannan (revised by C. R. Datta & S. K. Kataria): Banking Law and Practice,
LexisNexis India, Gurgaon.
5. B. Srivastava and K. Elumalai: Seth’s Banking Law, Law Publisher’s India (P) Limited,
Allahabad.
6. R. K. Gupta: Banking: Law and Practice, Modern Law Publications, Allahabad.
7. Prof. Clifford Gomez: Banking and Finance-Theory, Law and Practice, PHI Learning
Private Limited, New Delhi.
8. J. M. Holden: The Law and Practice of Banking, Universal Law Publishing, Allahabad.
9. K. S. N. Murthy and K. V. S. Sarma: Modern Law of Insurance in India, LexisNexis
India, Gurgaon.
10. Sachin Rastogi: Insurance Law and Principles, LexisNexis, India Gurgaon.