how life insurance premium is calculated


Are you wondering how life insurance premium is calculated? Well, if your answer is “YES” then you have come to the right place as today I am going to discuss how life insurance premium is calculated i.e. what the factors that affect the premium. There are basically many factors that you should take into consideration in determining the premium of life insurance.

Many factors are taken into consideration in determining the premium of life insurance, and then according to which all the factors are brought together, the premium of one’s life insurance is determined. Here we have given a detailed explanation of the most common factors that are involved in determining the premium for your life insurance. For more information on insurance and other aspects, read our article on Insurance in detail. These factors are

  1. Policy-Related Factors
  2. Insurer-Related Factors &
  3. Policyholder’s Personal Factors

In this article below we are going to discuss all the factors that you should consider to find out how life insurance premium is calculated.

Policy-Related Factors


The Policy-related factors of life insurance depend on 3 things such as policy cover, decreasing payouts and the whole versus term insurance plans. Let’s now know what these factors mean:

Policy Cover:

If a couple takes the joint life insurance coverage or family life insurance covers then the life insurance premium will be higher as compared to the individual life insurance policy premium. As in the case of the couple’s joint life insurance or family life insurance the company has to cover more people so consequently the premium is also higher.

Decreasing Payouts Policy:

How life insurance premium is calculated is subjective to whether you choose to have the consideration of security decrease each year, or in case you agree on taking a fixed sum of cover for the whole policy duration.

Whole v/s Term Policy:

A life insurance coverage that covers the policyholder until demise, also known as a whole life insurance plan, typically includes higher premiums in contrast with a term life insurance plan, which offers coverage only for a fixed time period.

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Insurer-Related Factors


The insurer-related factors depend on the interest of your life insurance policy, operating cost and the mortality cost. So, let’s now know in details about these factors under the insurer related factors below:


Insurance companies invest the premiums paid by the policyholder in bonds, real estate, stocks, etc., on the assumption that a precise amount of interest will be received on the capitalized funds. The premium of life insurance thus depends on interest too.

Operating Charges:

The total operative charges that insurance companies experience towards the marketing & non-marketing costs like rent, maintenance, legal fees, salaries, agents’ commission, and so many more. These operating costs effect their life insurance plan and that is how life insurance premium is calculated.

Mortality Charges:

The mortality charges are the sum that the life insurance companies pay on insurance plans. Insurers think through the applicant’s health history (both self & family), age, employment, driving records, hobbies, and so many more while determining how life insurance premium is calculated.

Policyholder's Personal Factors


3. Policyholder’s Personal Factors

Policyholder’s personal factors including age, medical history, height, and weight, etc. Let’s now know in details about the policyholder’s personal factors here:

Policyholder’s Age

First of all, the Life Insurance Company considers the policyholder’s age in deciding which premium is the most important. At an early age, a person has less risk of illness, which can endanger life.

Therefore, if you are buying a life insurance policy at an early age then the premium will be less and if you buy a policy at an older age, then you have to pay more premiums than the younger ones.

Personal Medical History

Insurance companies determine the premium by looking at the insurance history of the insurance applicant. If there is not any chronic illness in the past or any other deadly health problem, then the payment of premium will be reduced or else the payment of premium will be higher.

Family Medical History

People with a history of serious diseases like heart disease and cancer can pay more for life insurance.


According to various studies, the life expectancy of women is higher. Therefore, life insurance companies charge fewer premiums for women in comparison to men.

Present Health:

Normally you may have to undergo a medical examination to check for hypertension or other health-related problems, which can indicate the future potential problems. People who are currently in good health will usually pay a life insurance premium at a lower rate.


If the policyholder is in the profession like shipping, transportation, mining, operation of aircraft, etc., the risk of accidental death will be high, resulting in premiums imposed by the insurer more than any other person who is in a profession where life risk is less such as the job of sitting in the office.


People who are overweight or obese, they may have to pay more for their life insurance coverage because obesity can be a major reason for future health problems.

Hobby & Lifestyles

High-risk recreational activities like skydiving, Paragliding, rock climbing, and scuba diving, if you are part of such lifestyle then it can increase your life insurance rate.

Although each insurance company is different where a life insurance company can consider your hobby to be high risk, it may be that a second insurance company does not consider it a high-risk job.

Smoking Or Drinking Habit

People who smoke or drink alcohol pay more for life because their habit is inviting health risks.

Apart from all this, the fact of how life insurance premium is calculated depends on the insurance period, insurance amount, how insurance was purchased, premium quarter, half yearly, or yearly.


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