Factors That Determine Your Life Insurance Premium

Life Insurance is a contract between an insurance company and a policyholder that compensates the beneficiary on the death of the insured.  Life Insurance policies help you safeguard your family’s financial future by providing them with adequate funds in your absence. Death benefit is paid to the beneficiary in the form of lump sum amount or monthly instalments. But have you ever wondered as to why the life insurance premium for your policy is different than the one that your friend holds? That’s because there are several factors that affect the premium you have to pay. Read below in detail about the factors that determine the premium of your life insurance policy.

1. Age:

This is one of the prime factors that determine the premium of your life insurance policy. Premium for young individual is less as compared to someone older as a young person is less likely to contract any diseases. Whereas, the premium for an old individual is high as his health is more likely to get affected due to age-related conditions. Also, by insuring an old aged individual, the insurance company is at risk for providing coverage and the duration of the policy is less too.

2. Gender:

For insurance companies, women live longer than men and pose a lesser risk of claim. Premiums for women are much lesser as compared to men.

3. Smoking and drinking:

Premium for Individuals who drink and smoke is as compared to the ones who don’t. There is always a 40%-60% increase in the premium for smoking and alcohol drinking people since such habits are injurious to health.

4. Policy Term:

The longer the duration of the policy, lesser is the premium Long term policies are much cheaper than short term policies.

5. Buying policy online or offline:

Buying life insurance policy online is much cheaper as compared to buying one offline. No commission, paper work or administration cost is involved in the online process, hence, insurance companies offer heavy discounts on online purchases. You are also likely to receive free add-ons when buying policy online.

6. Premium payment frequency:

Your premium payment frequency also plays an important role in deciding the overall premium you pay. You can opt for monthly, quarterly, semi-annually or annually mode of payment. It is important to note that the premium paid on a monthly basis is likely to cost you more than the one paid on an annual basis.

7. Your current health status:

If you’re suffering from any pre –existing disease then the premium for your life insurance policy will be high as compared to an individual not having any existing medical condition. Insurance companies make you go through a series of medical tests to determine your health status and on the basis of the results of the test, the life insurance policy is issued. The premium of the policy is heavily dependent on the results of the test.

8. Occupation:

Occupations such as shipping, mining, etc. are considered to put your life at risk. Usually for people who work in a relatively safe environment, the premium is less.

Your life insurance premium is heavily based on the above factors and hence, it is important that you assess your risk profile and choose a plan that best suits your budget and requirement.