You don't buy life insurance because you are going to die, but because those you love are going to live!
However, it is not enough to buy life insurance, you need to pay life insurance premiums to keep the policy active. In return, the life insurance company provides you with life cover.
Hence, paying the life insurance premiums on a continuous basis is the most important aspect of life insurance policy. Discontinuation of premium payment may lead to the cancellation of the policy.
The amount of the premium is already determined when you buy the life insurance policy. Life insurance premium is determined by various factors like age, health, occupation, etc. In this article, we will discuss the factors that help determine life insurance premiums, as well as how life insurance premiums are calculated.
What Determines Your Life Insurance Premiums?
The premium amount payable for life insurance is determined by various factors, some of the major factors are as follows:
- Age
The first factor affecting life insurance premiums is the age of the life insured. A person in his twenties will be charged a lower insurance premium than a person in his forties or fifties. This is because an individual in his 20s is generally presumed to be healthier than a person in his 40s and 50s. As the risk factor is lower for young individuals, life insurance companies offer a lower premium. Here’s an example of how the age of the life insured affects the premium amount.
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Illustration - How age of the Life Insured affects the Premium Amount.
Suggested Reads: What is the impact of age on life insurance premiums?
- Gender
According to the World Health Statistics report1, which was released in June 2021, the average life expectancy for males was consistently around 5 years lower than the females. In the end, this affects their premium payment, allowing them to pay the premium for a longer period of time but at a lower rate, which is a plus for women.
Suggested Reads: How Health Insurance Premium varies by Gender?
- Smoking
A smoker is at a higher risk of all diseases. Smokers pay a premium twice as much as non-smokers, affecting the premium to a large degree. However, if you lie to the insurance company about not smoking but you do, your claim will be denied. So if you smoke, tell the truth to the insurance company.
Suggested Reads: How cigarettes could negatively impact your insurance premium?
- Medical History
Medical history is also a critical factor used to determine the premium amount. Individuals suffering from pre-existing diseases like diabetes have to pay a higher life insurance premium than healthier individuals. They are not denied life cover but have to pay more premium for it. It is important to disclose your health problems to the life insurance company, as non-disclosure may lead to a denial of a life insurance claim in the case of the life insured’s death, and their family members may suffer.
Suggested Read: How Your Present Health Affects Your Life Insurance Premium?
- Profession and/or Hobbies
People in certain risky professions in gas, oiling, or mining industries, or firefighters may be charged a higher premium because of the nature of their job. People who pursue risky hobbies, such as motor racing, skydiving etc., as they are more vulnerable to accidents.
- Policy Tenure
You must also consider the policy's tenure, the longer the term of the policy, the greater the death benefit you will receive, since you've been paying it over that period. Short-term policies are more expensive than long-term policies.
- Other Factors
- The life insurance premium is also calculated on an actuarial basis, a statistical and mathematical method used to evaluate risk in insurance, which considers the probability of death occurring at a particular age.
- The life insurance premium varies among different insurance companies because expenses related to writing the policy vary among insurers.
- There is also an operational cost involved in calculating the premium, including the office cost, the life insurance agent’s commission and the cost of the policy document.
- There is a contingency cost that is added to the premium charged. Though the amount charged for an individual policy may be less, it helps the life insurance company maintain its finances, especially when large claims are made due to natural calamities.
In this way, based on the individual and the selected insurance policy the premiums are calculated according to the rules of the insurance company. You can use a life insurance premium calculator to calculate your premiums depending on the policy you wish to buy.
Suggested Link: Future Generali Term Insurance with Return of Premium Calculator
Example of How to Calculate a Life Insurance Premium
Example 1 - A 31-year old healthy non-smoking male buying a life insurance policy with a sum assured of Rs 50 lakh has to pay an annual premium of Rs 12,611, while a smoker of the same age has to pay Rs 20,473 as premium, which is almost 70 percent higher.
Example 2 - Premiums also vary according to gender, with female policyholders paying a lower premium of Rs 10,452 at the age of 31 as against the corresponding premium paid by a male of Rs 12,611.
Conclusion
Now you know that a life insurance premium is determined by various factors, such as age, gender, health, occupation, among others. Apart from these, different companies may quote different premiums for the same person depending on their operational costs and contingency costs.
Future Generali India Life Insurance Company has tools and calculators on its website for child education and retirement planning. Information about name, age, and gender have to be provided for pension calculation. The above example uses a care plus premium calculators. For other life insurance premium calculators, click here
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Disclaimer for Image - Future Generali Care Plus plan
For detailed information on this plan including risk factors, exclusions, terms and conditions etc., please refer to the policy document or consult your advisor or visit our website (life.future generali.in) before concluding a sale.
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