Do you Know how your Life Insurance Premium is Determined?

July 21, 2021

When you’re procuring life insurance, you do not have much say in your life insurance premium calculations. It’s determined by the firm, and your only choice is whether to accept the offer provided by them or not. You will be offered a wide assortment of policies, and get first hand information about the associated premiums that you will need to pay. These premiums could range from over tens of thousands of Rupees to a few hundreds per year, depending on the sort of insurance and policy you opt for.

So, what determines your life insurance premium cost?

The premium rate for any life insurance policy is mainly based on three vital factors: Mortality cost, Operating cost, and interest.

Death Cost

This is the expense of the amount that life insurance firms need to pay out on insurance policies. The firms look at your age, driving record, health, general hobbies, and employment when determining your insurance policy cost. After the final assessment of these essential details, you would be allocated with a risk amount.


Interest earning is yet another vital factor that is utilized for the calculation of the final premium amount. Firms invest your premiums in stocks, bonds, real estate, mortgages, etc., and presume that they will earn a specific rate of interest on such invested funds.

Operating Costs

These are the expenses that accrue to insurance firms as a result of their non-marketing and marketing related costs. The firm estimates such costs as maintenance, legal fees, salaries, rent, agents’ compensation and more. The total operational costs incurred to the insurance firm determine the price of their life insurance policies.

Key Factors to Consider

There are few known factors which go into deciding the premium. While you cannot regulate some of them, prior knowledge will help in facilitating the act of filing out your insurance application form and understanding what you are factually looking for in your premium calculations.

Age – Age is a crucial factor for determining your life insurance premium. The best premiums will be available for younger people, as older people have a higher risk of dying.

Gender – Your gender contributes to your life insurance premium. Women typically go to the physician more often than men and are generally diagnosed for risky conditions earlier; hence they end up paying much less for their insurance plans.

Health History – Your health history goes a long way when an insurance firm is deciding upon your premium. The prevalence of any health disorders–currently or previously, and also your family history of ailment—serve to be main contributing factors. Additionally, if you succeed in showing that you have recovered from a serious condition such as cancer or that you are taking good care of something chronic such as diabetes, the evidence may lead to the lowering of your premium. This reduction is based on the firm and the type of insurance that you are applying for.
Your chosen insurance firm will also want to know if there are any past incidences that may signify your future engagements in high risk behavior. This can include anything from mental illness to bankruptcy filings. The demonstration of any such risk (at an earlier stage) could cause you to pay very high premiums.

Purchasing Life Insurance

Knowing these factors will surely come in handy as you seek the life insurance policy that is most suitable for you, your family and circumstances. To get the best coverage at an inexpensive rate, you need to invest time in a thorough research over the internet and find life insurance offerings that offer the best compensation, at cheaper premium rates.

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