Top 6 factors that affect how Life Insurance premium is calculated

Have you ever wondered why you are asked to pay lesser premium than your friend or family member? To end the confusion, we have prepared a list of factors that affect how life insurance premium is calculated.

Top 6 factors that affect how Life Insurance premium is calculated

Even when we know that we need to buy life insurance, we sometimes feel that the cost of buying it is too high. Thus, we delay it, thinking we will wait to buy it later on in life when it will be more affordable.

But, Frank McKinney had it right when he said, “Fun is like life insurance; the older you get, the more it costs."

Along with age, however, there are a number of other reasons why you may be asked to pay a different amount of insurance premium for the same cover that someone else gets at a lower or higher premium. These factors range from the medical health history of your family to the lifestyle you presently follow, and so on.

Here are the six factors insurers usually consider when calculating life insurance premium in India:

  1. How old are you?

Not surprisingly, age is the first and foremost factor insurers consider when deciding life insurance premium. The younger you are, the lower the risk of life-threatening diseases or death. Thus, it’s less likely that your insurer will need to make a large pay-out to your family in the near future, and thus, they lower your insurance premium.

  1. What gender do you identify as?

It’s a well-documented fact that women live on average five years longer than men, which is why insurers feel that insuring the life of a woman is less of a risk than insuring a man’s. For this reason, women end up paying lesser life insurance premium, albeit for a longer time period.

  1. Do you smoke and drink?

It’s not just your friends and family who have a problem with such a lifestyle. Insurers, too, take an addiction to alcohol, nicotine and/or other harmful substances very seriously. Thus, if you live a healthy lifestyle, and do not smoke or drink, you may pay between 30-70% lesser premium than someone who smokes or drinks, given the number of ailments that such addictions have been medically proven to cause.

  1. What is your family’s medical history?

It’s a simple matter of DNA: what’s in yours? If you have not had a lot of cases of cancer, heart attacks, Alzheimer’s, or other major diseases in your family’s history, insurers are likely to reduce your insurance premium. This is because your own chance of contracting such a disease would drastically reduce.

  1. Do you live a healthy life?

With the help of thorough medical examinations, insurers carry out ‘Underwriting’, which involves assessing risk by ensuring that the cost of cover they intend to provide to you is proportionate to the risks they face by doing so. For this reason, they assess your height, weight, cholesterol levels, blood pressure, blood sugar levels, vitamin deficiencies and various other health metrics. You can also do away with such tests, but your insurance premium would increase considerably if you do.

  1. Do you live your life on the edge?

Insurers very often charge higher premiums for individuals who involve themselves in high-risk activities like skydiving, hot air ballooning, mountain climbing or deep-sea diving. If your profession is relatively safer and you are employed in a desk job, rather than mining, shipping, piloting airplanes or firefighting, your insurance premium is likely to be lesser.  

In addition to the factors above, some insurers have even begun to consider recent bankruptcy and driving record. Also, there’s always the life insurance policy itself and the kind of coverage you have chosen, and any additional riders you have opted for. Term life insurance plans, for instance, offer the lowest premium, while term life insurance plans with return of premium offer higher insurance premiums that are returned to the policy holder at the end of the term.

Most importantly, however, you must disclose all health-related information at the time of buying the life insurance policy.  If you do not, and any material facts about your health are uncovered by your insurer at a later date, it could lead to a spike in renewal premium cost and/or your insurance claim getting rejected.

Have a question about life insurance plans? Leave it in the comments below and we’ll get back to you.



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