How Are the Premium Rates Determined for Term Insurance Policies?

Your family is the reason for your happiness and their support enables you to achieve all your goals and dreams. You want to ensure that you take care of the needs of your loved ones and secure their future. When it comes to taking care of the financial needs of your family and providing them with a sense of security, term insurance would be the perfect buy.

With term insurance, you get life coverage for a fixed period. The reason behind the popularity of term plans is that you get sufficient coverage for an affordable premium. When you are buying term insurance, there are a bunch of factors that you need to consider. The two key ones are the coverage amount and the premium that you have to pay for it. Read further to understand the factors that are taken into consideration for determining term insurance premiums.

How is the premium for your term insurance determined?

Here are the key parameters that an insurance company takes into consideration for determining the premium amount:

  • Age

Your age plays a key role in determining the premium of your term insurance. Since your life span is directly impacted by your age, the lower your age is, the lower your premium is likely to be. A young individual would have a significantly lower premium than an individual in their 50s. You can use a term insurance calculator to get an estimate of the premium you have to pay to get a term plan.

  • Health

Your lifespan and your quality of life are both directly impacted by your health. The term insurance premiums are calculated by taking your health and your family into consideration since they directly affect your lifespan. For example, an individual who has a family history of cancer is likely to have a higher premium than one that does not. Most insurance companies require you to undergo a medical examination to determine your health. If you have any underlying chronic condition, your premium amount is likely to increase. 

Several individuals attempt to hide information about their health in order to lock a lower premium. However, this backfires usually at the time of claim. If a policyholder had lied or concealed any information and the same is discovered at the time of a claim, the insurance company might even reject the claim made by their nominee altogether. Hence, whichever term insurance plans you choose, ensure that you disclose your health and lifestyle truthfully.

  • Occupation

Where your work and what your profession is usually not a significant factor that a life insurance company takes into consideration while calculating your premiums. However, there are some professions that directly impact the life span of an individual. If an individual is working in such professions, their premium is likely to be more than someone who does a desk job. For example, a pilot who travels around the world and is subjected to life-threatening scenarios every day would have to pay a higher premium.

  • Gender

When you are using an online tool like a term insurance calculator for getting an estimate of your premium amount, you will be asked to enter your gender. The reason behind gender being taken into consideration is, because, in India, it has been found that the average life expectancy of women is more than that of men. Hence, some insurance companies might charge men more for the same policy than women taking this data into consideration.

  • Lifestyle habits

Your lifespan is directly impacted by the quality of your life. If you have an unhealthy lifestyle, you are likely to have to pay a higher premium than someone who is a healthier individual. Insurance companies ask individuals about their lifestyle habits like smoking. If an individual smokes, their premium is likely to be more than someone who does not. On the other hand, if there is an individual who is of a healthy weight and does not smoke, the premium of their term plan is likely to be lower.

The above factors are usually considered by an insurance company to determine the term insurance premiums. While looking for term insurance plans, ensure that you choose a premium account and payment frequency that you can pay easily.

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