What is premium payment mode rebate in insurance policies?

In life insurance policies, especially in endowment and money back plans; insurance companies provide mode rebate on insurance premium to policy holders. This rebate is not claimed separately; rather it is subtracted from the final premium to be paid.

For example, LIC provides premium payment mode rebate of 2% on yearly & 1% on half yearly, and 0% on Quarterly & monthly premium payment to its policy holders.

This rebate is available on various LIC's plans like Jeevan Anand, Jeevan Labh, Endowment Plan, Jeevan Lakshya Plans etc.

To put it simply, for premium calculation, insurance companies fix monthly premium for an individual according to his age and policy term for a particular sum assured. Following table indicates monthly premiums of Jeevan Anand policy for 100000 Sum assured.

Age (In years) Term 21 Years Term 25 years Term 30 year
20 451.3 369.2 298.8
21 452.9 370.8 300.0
22 455.0 372.5 301.7
23 456.7 374.2 302.9

In the above table, monthly premium for a person aged 22 and term period 30 is Rs 300. If a policy holder wants to pay premium by opting for monthly mode, then he has to pay 300 per month. But if he chooses to pay on yearly basis, then yearly premium comes out to be 300x12=3600 and since he has opted for yearly mode, he will get 2% rebate on 3600 which comes out to be 72. The final premium for yearly mode will be 3528 (3600-72). Similarly, following table provides the rebate amount for other modes.

Premium calculation details for Age 22, Term 30 and sum assured:100000 @ Rs. 300 Per month.
Mode Premium Without  Rebate Rebate Rate Rebate Amount Final Premium to be Paid
Yearly3600 2% 72 3528
Half Yearly1800 1% 18 1782
Quarterly900 0% 0 900

So, it can be understood that if the amount is paid in advance, it would accumulate some interest and the same would be discounted to policy holder in the form of a rebate.

Frequently Asked Questions

Q: Do I have to claim this rebate separately?

A: No.

Q: What if some one changes premium mode in future?

A: New premium to be paid will be calculated afresh with applicable rebate rate.

Comments & Reviews (2)

Wrote :

03-09-2018 17:59:42

What is the Rate of Interest for Jeevan Akshay 6 for the year 2018.

Wrote :

06-09-2018 15:15:38

It is not x % percentage of interest rate. The interest or annuity is dependent on pension option and age at the time of purchase. Please use Jeevan Akshay Pension Calculator to calculate it for yourself.

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Wrote :

31-08-2018 17:39:57

This scheme is specially deigned for Sr.Citizen Good scheme. But GST is applicable for 18% is too high. But PM's atal Pension scheme is not attract GST and ROI is 8%. but taxable. We the Sr.Citizen need exemption for this Jeevan Akshay 6 scheme. Kindly take up the matter to high authority and do some favour for Jeevan Akhsay 6

Wrote :

31-08-2018 19:38:37

On pension plan like Jeevan Akshay 6, the GST rate is 1.8% not 18%.

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