A life insurance policy helps the policyholder have a deeper peace of mind by insuring their life. The life cover provided by the policy ensures to a great degree that the policyholder’s loved ones will have a financial support system if anything unfortunate were to happen to the life insured.
The cost for this protection is obtained by the insurer in the form of a premium. The policyholder must pay the premium either in a lump-sum amount or regularly, as stated in the policy contract. The premium differs for each policyholder since it is calculated on the basis of several subjective factors. In this article, we take a look at 6 such major factors.
Factors that influence the premium
Perhaps no other point influences the premium of a policy more than age does. The reason the age factor is so important is that it determines the health of the policyholder, and, consequently, the risks that the policyholder bears. It is common knowledge that older people are more likely to fall ill or be vulnerable to diseases and accidents.
This heightened vulnerability means that the insurer is bearing a larger amount of risk. This ultimately leads to an increase in the premium. Hence, it is recommended to buy health insurance at a young age, when one is relatively healthy. You can use a life insurance premium calculator to get a better idea of how much premium you may incur based on your age.
- Life insurance coverage
The coverage you have chosen also determines the premium to a great extent. A basic life insurance policy would have a lower premium than a policy with added benefits and comprehensive coverage.
For the uninitiated, the coverage of a life insurance policy can be supplemented by add-ons, such as waiver of premium, income replacement, critical illness benefit, and so on.
- Lifestyle habits
Apart from age and coverage, another important determinant of the life insurance premium is the specific lifestyle habits of the policyholder. To get an idea of this, the insurer may look at aspects such as the drinking and smoking habits of the policyholder.
Unhealthy habits put the policyholder at a greater risk for life-threatening illnesses such as cancer, thus increasing the risk for the insurer. Hence, individuals who have such habits may have to pay higher premiums.
- Medical history
The medical history of an individual has a considerable bearing on the future health of an individual. Hence, insurers look for this aspect as well when issuing a plan. For instance, if the policyholder has had a history of consistently high sugar levels, then there may be a risk of diabetes in the future.
For the same reason, many insurance companies also mandate a medical check-up before issuing a life insurance policy. It helps them gauge the health of the candidate so that they can calculate the premium accordingly.
This may come as a surprise to some, but gender indeed plays a role in premium calculation. Women, in general, tend to incur lower premiums than men. The main reason behind this is that women have a higher life expectancy than men, as per scientific observations and studies. Another reason is that, generally, women are less likely to partake in risky behaviour, such as having a dangerous job or smoking.
If the policyholder is engaged in a profession where the risks to their life are high, then their life insurance premium is likely to be high as well. This may include jobs in the construction industry, commercial driving and transporting, firefighting, and so on.
Also, note that these factors can affect your premium in tandem. For instance, a 25-year-old heavy smoker may have to pay a higher premium than a 40-year-old with healthy lifestyle habits and in excellent health.
A high premium should not deter you from buying a life insurance policy. You can make healthier adjustments in your lifestyle, which will lead to positive results and can make your premium go lower. Using tools, such as the life insurance premium calculator and the human life value calculator, can also help you save a decent amount of money by helping you understand where you can cut things short. Do reach out to your insurer for more clarifications on your premium.