1.Age:
Age is the prime factor in deciding the premium of the life insurance policy. The reason being is a young person’s body is less likely to contract diseases. Also, a young person is more likely to choose a longer duration policy in which he/she will be paying more number of premiums than compared to someone older. Therefore, the premium amount is less if you are buying an insurance at a young age than compared to older age where premium calculation is always high as risk to insurance company is more and duration of the policy term is less.
2.Gender
Although it is said all men and woman are equal but for insurance company’s woman live longer than men and pose a lesser risk of claim. Hence, premiums for females is slightly lesser than compared to males falling in same criteria.
3. Smoking and drinking
We all are aware smoking and drinking are injurious to health and can increase the risk of contracting life threatening diseases. A person who smokes or drinks alcohol has to pay a higher premium in the range of 40% to 60% than a non-smoker or drinker. Hence, smoking and drinking is not only injurious to your health but also to your wealth.
4. Policy Term
The policy term plays an important role in determining the premium. The longer the duration, cheaper will be the premium. Hence, long term polices are cheaper then short term policies.
5. Platform you are using to buy the policy
Premium also depends on the platform you are using to buy the policy. Today due to internet revolution and easy access of internet on smart phones, all major insurance companies have an online presence enabling easy purchase of policies online. The cost of selling policies online is also less as it involves less administration cost which helps in cutting down the premium. Offline platform involves lot of intermediary cost such as commission, paper work, administration which adds up to the premium payable.
6. Premium payment frequency
You can choose the frequency of premium payment as monthly, quarterly, semi-annually and annually. However, the insurance companies charge higher premium based on the frequency of payment selected. For them if you choose monthly payment then the cost of collection, administration, paper work will be more. This cost is added to the premium payment. Hence, if you select annual payment mode then you pay less premium and also the insurance company gets the fund for the whole year in one shot.
7. Your current health status
Insurance companies ask you to go through medical tests to evaluate your current health situation. Based on your medical test results insurance companies decide on the premium amount. So, if you are deemed medically fit it will help in lowering your premium amount calculation. For example
- Obesity: Obesity increases the chances of people contracting various diseases such as diabetes, heart problem, blood pressure etc. These diseases can pose a higher risk causing death and as a result the premium gets high.
8. Occupation
Certain occupations are considered more dangerous like shipping, industry workers, miners, fisherman are expected to pay more premium than people working in an office job where the work environment is relatively safe.
How much impact each of the above factors has on your life insurance rates also depends on how the insurance company rates each factor. As every case of premium calculation is taken on an individual basis, it is prudent that before buying a life insurance policy you should compare the quotes from different insurers to get the ideal life insurance deal.
Recommended Read: How to Choose & Buy the Best Life Insurance Policy In India?
FAQs
Insurance companies consider your health, lifestyle, family medical history, driving record, and whether or not you smoke.
What are the factors that determine life insurance premiums? ›
Insurance companies consider your health, lifestyle, family medical history, driving record, and whether or not you smoke.
What is the key factor used to determine insurance premiums? ›
Key Takeaways
Insurance companies use credit scores and history to determine your premium on insurance. It is very difficult to pinpoint exactly how to get the best insurance score, but it is possible to improve it.
What are the factors to be considered when determining the premium to be charged? ›
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What determines insurance premiums? ›
Some factors that may affect your auto insurance premiums are your car, your driving habits, demographic factors and the coverages, limits and deductibles you choose.
What are the factors considered while calculating insurance premium? ›
Personal information: Depending on the type of insurance for which you're shopping, the insurance company may take a close look at things like your claims history, driving record, credit history, gender, marital status, lifestyle, family medical history, health, smoking status, hobbies, job, and where you live.
What are the 5 C's of insurance? ›
The 5Cs of transformation in insurance are – communication, customization, connection, cognition and consensus. Let's look at each in turn: Communication At its core, insurance is a promise. Now, there isn't much value in a promise if you can't communicate it!
What is basic premium factor in insurance? ›
The basic premium factor is the acquisition expenses, underwriting expenses, profit, and loss conversion factor adjusted for the insurance charge for a policy. The basic premium factor is used in the calculation of retrospective premiums and does not consider account taxes or claims adjustment expenses.
How is life insurance premium determined? ›
The premium rate for a life insurance policy is based on two underlying concepts: mortality and interest. A third variable is the expense factor which is the amount the company adds to the cost of the policy to cover operating costs of selling insurance, investing the premiums, and paying claims.
How to calculate basic life premium? ›
To calculate premium due, multiply the benefit amount by the premium rate set forth in your policy. Be sure to apply salary definitions, benefit maximums, rounding rules, age reductions, guarantee issue limits, and spouse coverage limitation or restrictions.
Five factors that affect your auto insurance payment are how often you pay your premium, your vehicle, your driving history, your credit history and your state's coverage requirements. Insurance companies use most of these factors to determine how likely you are to file a claim and thus how risky you are to insure.
Which factors are taken into consideration when an insurance company determines the premium? ›
Insurance premiums are influenced by factors such as the type of coverage, policy limits, deductibles, and the insured's risk profile.
What does the premium depend on? ›
For deciding the premium amount, an insurance company examines the type of coverage being opted, the lifestyle and health conditions, and the likelihood of a claim being made, among other factors. You may pay an insurance premium in a lump sum or as a regular sum.
What are the 3 factors that determine the premium for a particular policy? ›
The three factors that determine the premium for a particular life insurance policy are: Age of the policyholder, overall health, and lifestyle of the policyholder. Age of the policyholder: Generally, the younger a person is when they purchase life insurance, the lower their premiums are likely to be.
Which is one of the factors that determine life premiums quizlet? ›
Mortality, expenses, and interest are the only factors that determine premium rates.
