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How is the Premium for Life Insurance Calculated?

Aug 10, 2018 | 2 years ago | Read Time: 3 minutes | By iKnowledge Team

Life insurance premium is influenced by numerous factors. It is highly dependent on the chosen plans and the applicant’s details such as age, health, gender, occupation, financial ability, debts, and dependents and so on. Premiums differ with insurers. Occasionally the premium you pay is different than what is calculated by the premium calculator as the calculations may change with these factors. Thus, understanding what goes in to calculating a premium is vital to make an informed decision. Let’s take a look.

How is Life insurance premium calculated?

Insurance companies employ their underwriting department to calculate premiums. With the help of statistics and mathematical calculations that take in to account the applicant’s medical history, age, etc. they ascertain the premium amount. This information is further analysed by statisticians hired by insurance companies called ‘actuaries’ who predict the likelihood of a claim. From the data collected, they use a mortality and sickness table that assign a probability to and predict the likelihood of the applicant dying or getting an illness based on age and gender. A higher probability of claim attracts higher premium charges. Based on the results of this analysis, the premium is calculated.

Let’s look at some of the pivotal determining factors:

Age – Age and insurance premium have a direct correlation. The amount you would pay towards premium increases as you age, which is why it’s a good idea to buy insurance early on. Also, younger people are less susceptible to age-related diseases and thus the likelihood of a claim arising is less.

Gender – On an average, women live longer, hence they would have to pay more number of premiums. Women are also more likely to get diagnosed with illness earlier. Therefore, the premium calculated for them might be lower than what men might be required to pay.

Physical attributes – Height and weight of the insurance buyer is also a factor considered by companies while calculating premium. As overweight people are more prone to weight-related disorders, they may attract more premium than healthier people.

Medical history – Not just your current health status, but your medical history is also an important factor that affects how your premium is calculated. Any past illnesses, the likelihood of them returning and the severity of its impact are contributing factors to premium calculation. Insurers also look at your family’s health history and if you’re prone to contracting hereditary diseases like diabetes or heart related issues, etc.

Drinking and smoking – If you smoke or drink regularly, you’re more vulnerable to health problems associated with such habits. Insurers factor in such habits while computing your premium.

Profession – If you’re in a profession that poses a certain amount of risk to your life there is a greater chance for a claim. For instance: Premiums for pilots are higher than sedentary professionals.

Marital status – While deciding the premium, insurers also look at your marital status. In case of joint insurance policies for couples, payout can only be given at the time of death of the first spouse.

Income and debts – Your current income and debt play important roles in determining your premium. Insurers assess your financial standing while calculating premium to know if you will be able to afford it.

Policy tenure and death benefit – The length of your policy is also a basic determinant of your premium. Since longer tenure policies give a higher death benefit, they attract higher premiums compared to shorter duration policies. This also explains why a life insurance policy that covers you until death involves a higher premium compared to a term insurance policy which covers only a limited number of years.

Mode of premium payment – Insurance companies give you the option to pay premium either monthly, quarterly, semi-annually or annually. However, frequently paid premiums are usually more expensive due to additional operating costs incurred by insurance companies in processing them. Thus, cost of your premium depends upon the frequency with which you pay the premium.

Decreasing payouts – Insurance premium is also calculated based on the quantum of protection. If you choose a policy where the protection decreases year after year, the premium will be calculated differently than if you had a policy that provided a fixed cover for its entire duration.


Researching and analyaing all available policy options is important before selecting an insurance policy that covers all your needs. Understanding how policy premium is calculated will help you do an effective cost-benefit analysis of the policy and enable you to exercise prudent judgement while purchasing one that gives you optimum coverage at minimum cost.

To know about AegonLife’s life insurance products like term insurance plans and other products like health insurance , visit our home page.

Advt. no.: IA/Jul 2018/4259


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