Your personal profile – age, health, profession and personal habits – greatly influence the premium you pay on a policy. So, if you are middle aged, or a chain smoker, or are burdened with health problems, or are into high-risk activities such as car racing or sky diving, you can pretty much forget about getting the cheapest life insurance deal on offer.

Having said that, there are ways by which you can reduce your premium payable, many of which revolve around simply being aware of your life insurance needs and some insurance basics. Here are six strategies to slash the premium outgo on your life insurance.

1. Pay Annual Premiums
On most policies, insurers give you multiple options on the premium payment schedule: yearly, half-yearly, quarterly or monthly. From a financial standpoint, the yearly option is the best.

If your income inflows enable you to pay annual premium without stretching your finances, go for it. You would end up paying more under the other three options, as the split in the premium amount isn’t precisely calibrated to the increase in payment frequency. So, the quarterly premium will be marginally more than one-fourth that of the yearly sum. Likewise, the monthly amount will be slightly more than one-twelfth that of the yearly sum.

For instance, under a typical endowment plan, a 30 year old male buying 20 years, Rs 1 lakh sum assured policy, and opting for the yearly premium payment option, will have to pay a premium of Rs 4,640 a year. If, he were to choose the half-yearly payment option instead (that is, pay every six months), he will have to pay Rs 2,366 as premium, which works out to Rs 4,732 – an additional sum of Rs 92 every year.

Even if one factors in the concept of ‘time value of money’ (a rupee received today is worth more than a rupee received tomorrow), and accounts for the fact that the policy holder earns interest on Rs 2,366 for a period of six months, the yearly payment option is still a better proposition. If you invest the half-yearly premium of Rs 2,366 in a six-month bank deposit, which currently returns a maximum of 8 percent a year, it would earn an interest of around Rs 71. Compared to the yearly option, you are still paying an additional Rs 21 (92-71) a year as premium under the half yearly option.

Besides monetary savings, a yearly schedule also means less paperwork compared to staggered payment schedules.

More cheques, more follow-up with your agent, more paperwork to handle. Also, more the number of payments to be made, greater is the risk of defaulting on a payment. In case of default, you have to pay a fine, which can go up to 0.5 percent of the premium.

2. Reducing Premium in ULIPs
Most unit-linked plans have the features to reduce premiums, but only after a period of three years. The maximum reduction can be up to a certain percentage of the first premium. This won’t affect the policy in any way, that is the policy will not lapse and the sum assured will remain unchanged.

3. Club Policies Whenever Possible
All else remaining the same, the premium rate (premium payable per Rs 1,000 assured) tends to reduce with an increase in the sum assured. It’s the insurer’s way of giving you a discount in return for greater business. So, instead of buying two or more identical policies, it makes more sense to buy one policy worth the same amount – and reduce your premium outgo in the process.

Let’s continue with the above mentioned example of an endowment plan to see how this strategy works. The annual premium payable on a sum assured of Rs 1 lakh is Rs 4,640, while that on a sum assured of Rs 50,000 is Rs 2,600. If our policy holder bought two policies worth Rs 1 lakh and Rs 50, 000 respectively, he would pay a total premium of Rs 7,240 (4,640+2,600). However, if he were to buy the same cover under one policy only, he would pay Rs 6,885, which translates into a saving of Rs 355 a year.

Even when you want to increase your life cover, increasing the sum assured of your existing policy – provided, of course, your insurer lets you do so – should be your first option. Most, insurers let you scale up the sum assured of an existing policy by a minimum amount of Rs 50,000, but only during the first year of its tenure.

4. Stat buying Life Insurance while you are healthy
The premium you pay on a life policy is influenced by your age and your health condition. Obviously, a healthy individual will pay a lower premium than a not-so-healthy person.

One way to overcome this uncertainty is to get yourself insured – assuming you need life insurance to protect your dependents in the first place – before the age of 35. This is the age till which most insurers don’t insist on a mandatory medical check-up as a precondition for selling you life cover. If there’s any indication in your medical record or current lifestyle that there’s a possibility that you might move into the so-called ‘risky’ category sometime in the future, look to buy cover before the threshold age of 35.

Continuing with the example of the template endowment plan, a healthy, 30 year old would pay an annual premium of Rs 4,640 for sum assured of Rs 1 lakh. However, if he is say, diabetic, he will have to pay around Rs 4,900 for the same cover. At age 35, the corresponding premiums payable will be Rs 4,700 and Rs 5,500 respectively.

5. Don’t pay a mark-up in premium for temporary illnesses
During medical examination, insurers often penalise you for temporary illnesses, by charging you a mark-up over the normal premium. If the illness is temporary and a one-off occurrence, you have a strong case to insist on life cover at the premium payable by a healthy individual of the same age. For instance, even medication for a common cold has been known to show a variance in an individual’s health make-up.

If the medical ailment in question is of a temporary nature, negotiate with the insurer. If the insurer is adamant on charging the higher premium, approach another insurer.

By the same logic, don’t approach an insurer for cover when you are unwell as you might unnecessarily get embroiled in a difference of opinion over the premium payable. Wait till you’re fit, and then buy insurance.

6. Attach a “Level Term Cover Rider” to Endowment Plans to increase Life Cover
A level term cover rider enables you to increase life cover on plans other than term plans, up to the sum assured of the basic policy. The USP of a level term cover rider is that it offers pure risk cover at the least cost, even less than a conventional term plan.

This cost advantage offered by level term riders, when used smartly, can result in significant savings in premium outgo in one specific instance: when you buy life cover through a combination of an endowment and a term plan. Assume you have assessed your need for life cover at Rs 10 lakh for the next 20 years, of which, you buy Rs 5 lakh through an endowment plan. The balance Rs 5 lakh cover can be bought by way of a separate term plan, which would roughly entail a premium outgo of Rs 2,100 a year for a 30 year old male. The cheaper option is to attach a Rs 5 lakh level term cover rifer to your endowment plan, which would cost around Rs 1,800 a year – a saving in premium of Rs 300 a year.

Source :- http://www.snpinsurance.com/2010/09/how-to-reduce-insurance-premium.html