Factors That Affect Term Life Insurance Premiums

In India, increasing the premium for insurance every year is not a rule. However, the term insurance rate increase depends on several factors:

• Renewable Term Insurance Plans:

  The increase in premiums is possible when you have decided to opt for a renewable term plan. It is because insurers re-analyze your age and risk level at every renewal.

• Health Changes:

  Premium can also go up if there is a sudden change in your health condition during renewal. This happens when insurers review your medical updates before continuing the coverage.

• Inflation:

  Inflation can also impact the premium prices over time. This happens to keep in range with the rising medical or life coverage costs.

• Riders and Add-Ons:

  Your premium charges also increase when you have added coverage via riders such as critical illness benefit rider or accidental death benefit rider, which increases the overall premium amount.

 

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.

• Post-COVID Mortality Impact: After the COVID pandemic, there has been a reduced mortality which has resulted in higher-than-expected death claims. This has led to an increased risk overall which in turn forces the insurers to make changes in their pricing structure over time.
• Reinsurance Price Hikes: Post-COVID, reinsurers raised their charges due to rising mortality and uncertainties, which directly impacted term plan pricing.
• Tighter Underwriting Norms: As the claims have increased, insurers have also become more cautious. The premium costs have been a result of stricter medical evaluations and risk assessments.
• Market Competition and Sustainability: To remain competitive, insurers are adjusting prices. While still affordable, premiums are now more aligned with current health and risk realities.

 

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.

 

How to Avoid Rising Premium Costs?

Rising insurance premiums can impact your long-term financial planning. Here are some smart ways to keep your costs in check:

1. Select a Long-Term Fixed Premium

Choose a term insurance plan with fixed premiums throughout the policy term. This locks your premium at the entry rate, protecting you from future hikes.

2. Review Your Coverage Frequently

Review your policy every few years. You might be paying for more coverage than needed.

3. Improve Your Health

Maintain a healthy lifestyle. Non-smokers, fit individuals, and those without pre-existing health conditions often get lower premium rates.

4. Compare Different Policies

Always compare various policies and then only make your final decision. You can compare various plans as per your requirements.

How to Choose the Right Term Insurance Plan?

Choosing the right term insurance plan ensures financial security for your family. Here’s what to consider:

1. Adequate Coverage

Choose an assured sum that covers your family’s future needs, debts, and living expenses. A good rule is 10 times your annual income.

2. Affordable Premium

Select a plan with premiums that fit your budget while offering sufficient coverage. Avoid underinsuring just to save money.

3. Riders and Add-Ons

Look for essential riders like critical illness, accidental death benefit, or waiver of premium to enhance protection.

4. Policy Term

Pick a term that aligns with your retirement age or until major financial responsibilities are met.

5. Insurer’s Credibility

Check the insurance company’s claim settlement ratio and customer reviews for reliability and support.

Making an informed choice gives you peace of mind and financial security for your loved ones.

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. What is the term insurance premium, and why does it vary?

A term insurance premium is the amount you pay regularly to keep your life insurance plan active. It varies based on your age, health, lifestyle, policy duration, and the coverage amount you choose amongst other factors.

2. How does age impact term insurance premiums?

Age is a major factor in determining your premium. The younger you are when you buy term insurance, the lower your premium. This is because younger people are generally healthier and pose a lower risk to the insurer.

3. Will a change in the coverage amount impact my premium?

Increasing the coverage amount will raise your premium, while reducing it can lower your premium. But make sure the coverage is still enough to secure your family's financial needs.

4. How does the policy duration affect the premium?

Longer policy terms often have slightly higher premiums, but they offer protection for a longer time. Shorter terms may cost less, but could leave you without coverage when you need it later in life.

5. What are some of the factors that affect life insurance premiums?

Premiums depend on various factors like your age, gender, health status, lifestyle habits (such as smoking), occupation, sum assured, policy term, and any added riders etc.

6. What does the term insurance premium depend on?

Term insurance premium is calculated based on your profile (age, health, habits), the coverage amount, duration of the plan, and extra benefits or riders you choose. The higher the risk, the more you will pay.

7. Does the term insurance premium rise over time?

For most standard term insurance plans with a fixed tenure, the premium remains constant throughout the policy term. However, in the case of renewable term plans (e.g., annual renewable term), the premium may increase at the time of renewal based on your age and revised risk profile.

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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