The life insurance premium is the amount of money you pay to the insurance company for your life insurance policy. It is usually paid monthly, quarterly, semi-annually, or annually, depending on your preference and the type of policy you choose.
Several factors determine the life insurance premium. Let’s learn about these parameters in detail.
Factors Affecting Life Insurance Premium
Age
Age is the most influential factor in calculating life insurance premiums because it reflects your mortality risk and health problems.
As you get older, the cost of your life insurance goes up. This is because as you age, your risk of having health issues like heart disease, diabetes, or cancer goes up, too. Plus, the older you get, the shorter your life expectancy. That means the insurance company might need to pay out sooner.
Therefore, the best time to buy life insurance is when you are young and healthy. You can lock in reduced premiums for a longer term and enjoy peace of mind with life insurance.
Health and medical history
The unhealthier you are, the higher your life insurance premium will be. This is because you have a higher chance of developing or dying from a severe disease that could shorten your life span and reduce your quality of life.
Some of the health and medical factors that affect your life insurance premium are:
- Smoking is among the most detrimental habits for your health and life insurance premiums. Smokers pay much more than non-smokers for life insurance because they have a higher risk of lung cancer, heart conditions, stroke, and other smoking-related diseases.
- High blood pressure leads to severe complexities like heart attacks, strokes, and kidney failure.
- Cholesterol: High cholesterol or hypercholesterolemia is another common condition that can cause cardiovascular diseases such as atherosclerosis and coronary artery disease. Lowering cholesterol with medication, diet, and exercise can lower your premium and prevent heart diseases.
Coverage amount
The coverage amount is the fund your beneficiaries will get if you die while your policy is in force.
The higher your coverage amount is, the higher your life insurance premium will be. That is because you buy more protection and benefits for your family and assets. You may also have more financial needs and goals that require more coverage.
The coverage amount you need depends on various factors, such as your earnings, expenses, debts, assets, dependents, etc. You should calculate your coverage amount based on your current and future financial situation and obligations.
Some tips on how to calculate your coverage amount and find the best value for your premium are:
- Use a life insurance calculator or a simple formula to estimate your coverage amount. A standard formula is multiplying your annual income by 10 or 15 and adding any outstanding debts or expenses.
- Consider your short-term and long-term financial needs and goals, such as income replacement, debt repayment, education funding, estate planning, etc.
- Review your life coverage regularly and update it if your coverage amount changes, such as getting a raise, paying off a debt, having a child, etc.
Occupation
Occupation affects your life insurance premium based on the job hazards that may increase or decrease your risk of death or disability. The more dangerous your job is, the higher your life insurance premium will be. This is because you have a higher risk of getting injured or killed while working. Some examples of dangerous jobs are mining, construction, firefighting, military, etc.
Payment Frequency
The less frequent your payments are, the lower your life insurance premium will be. This is because you pay less administrative fees to the insurance company for processing your payments. You may also have more discounts and savings when paying your premium.
The payment frequency you choose depends on your preference and convenience. Depending on the type of policy and the insurance company, you can choose to pay your life insurance premium monthly, quarterly, semi-annually, or annually.
Riders
Riders and add-ons are optional features and benefits that you can add to your life insurance plan to enhance your coverage and protection.
The higher your life insurance premium will be, the more riders and add-ons you have. That is because you buy more protection and benefits for yourself and your beneficiaries. You may also have more specific needs and goals that require more coverage.
Conclusion
Life insurance is a strategic financial decision that can protect your family and assets in case of death. However, the life insurance premium is not a fixed or arbitrary amount. Many factors, such as the type of policy, the coverage amount, the policy duration, age, gender, health, lifestyle, occupation, and more, determine it.
By understanding these factors and how they affect your life insurance premium, you can find the best policy for your needs and budget.
