What Are Some Factors That Affect Term Life Insurance Premiums?

Life insurance plans are legal contracts wherein insurance companies undertake to insure the risk of premature demise or pay a benefit on maturity. In consideration for this contract, you have to pay a premium¹.

Life insurance premium is the cost of buying the policy. It can be paid in one lump sum (single premium), for a limited period (limited premium), or throughout the chosen policy tenure (regular premium). Moreover, insurance companies offer different premium paying frequencies like annual, half-yearly, quarterly and monthly.

The premium calculation is done by the insurance company and it depends on different factors. let’s assess the factors that affect life insurance premiums.

What Are the Factors That Affect Term Insurance Premium?

The different factors that affect term insurance premiums and their respective effects are detailed below –

1. Life expectancy

Life expectancy means for how long the insured individual is expected to live. If the life expectancy is higher, it means that the insured has lower chances of premature death. In such cases, the premiums are lower.

2. Add-on benefits and features

Add-on features and benefits include inbuilt riders, additional coverage options, whole life coverage options, return of premium option, etc. If a term insurance plan offers these add-on benefits, it has a wider scope of coverage. A higher premium is charged for this wider coverage. Moreover, if you choose additional coverage features like whole life coverage, return of premium benefit, etc., the premium goes up³.

3. Age

Age is one of the most important factor affecting life insurance premium. This is because age affects your mortality risk. With rising age, the body grows weak and diseases set in. Moreover, as you get older, your mortality risk increases. Thus, term insurance premiums are usually higher in older ages compared to younger ages².

4. Occupation

Some occupations are dangerous and increase the mortality risk. Common examples include mining, aviation, politics, defence, etc. Premiums for individuals engaged in such risky occupations are higher³.

5. Health condition

If you have adverse health conditions like diabetes, hypertension, etc., your health risk increases and so does the mortality risk. As such, higher premiums are charged in such cases⁴.

6. Smoking habit

Term insurance premiums are higher for individuals who smoke5. This is because smoking increases health hazards and the mortality risk. Alternatively, non-smokers can enjoy lower premium rates since they are considered healthy.

7. Lifestyle habits

If you have bad lifestyle habits like drinking or substance abuse, your term insurance premiums would rise⁵.

8. Tenure of the plan

Annual premiums are lower for plans which are long-term than for plans which have a shorter tenure.

9. Personal and family medical history

If you have adverse medical history in your family or if you have previously suffered from any medical complication, the premiums would be higher⁶.

10. Build

Your height and weight also affect term insurance premiums as these parameters determine your BMI. A higher BMI indicates unhealthy lifestyle and premiums are higher in such cases⁶.

11. Riders

If you add riders to the term insurance policy, you have to pay an extra premium for each rider chosen⁷. This increases the overall premium of the term insurance policy.

How to Reduce Term Insurance Premiums?

There are ways in which you can reduce term insurance premiums. Some such ways are as follows -

1. Purchase a term insurance policy at young age

As mentioned earlier, premiums are lower at younger ages and higher at higher ages2. As such, when you buy a policy at a young age, you can get lower premiums which also remain the same throughout the policy tenure.

2. Opt for a longer policy duration

As the policy duration increases, the annual premium reduces. So, if you choose a higher tenure, your premium would come down.

3. Look for rebates

Term insurance plans offer rebates which discount the premium. Some of the commonly available rebates include the following⁸ –

o Sum assured rebate

This rebate is offered if you choose a high sum assured. The rebate usually increases with the sum assured chosen.

o Modal rebate

This rebate is offered for paying the premium in the annual or half-yearly modes. Monthly and quarterly modes might attract additional premiums but annual and half-yearly modes allow discounts.

Moreover, under some plans you might also find lower premiums for females.

4. Evaluate plans before purchasing

There are different types of term insurance plans available in the market. Each plan is priced differently. So, if you compare and then choose a suitable plan, you might enjoy affordable premiums.

Conclusion

Term insurance plans have low premiums which are affected by various factors. Know these factors so that you know how the premium is calculated. Ensure that the premium is affordable so that you can continue paying it over the chosen tenure and enjoy complete protection under the term insurance plan.

FAQs

1. Does the term insurance premium rise over time?

No, the term insurance premium is fixed once you buy the policy. Thereafter, it does not rise over time but remains constant⁹.

Reference

1. https://www.insuranceinstituteofindia.com/downloads/IC38/ALEnglish.pdf (Page 80)

2. https://www.insuranceinstituteofindia.com/downloads/IC38/ALEnglish.pdf (Page 104)

3. https://www.insuranceinstituteofindia.com/downloads/IC38/ALEnglish.pdf (Page 278)

4. https://www.insuranceinstituteofindia.com/downloads/IC38/ALEnglish.pdf (page 185)

5. https://www.insuranceinstituteofindia.com/downloads/IC38/ALEnglish.pdf (page 279)

6. https://www.insuranceinstituteofindia.com/downloads/IC38/ALEnglish.pdf (Page 282)

7. https://www.insuranceinstituteofindia.com/downloads/IC38/ALEnglish.pdf (Page 139)

8. https://www.insuranceinstituteofindia.com/downloads/IC38/ALEnglish.pdf (page 184)

9. https://www.insuranceinstituteofindia.com/downloads/IC38/ALEnglish.pdf (page 105)

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