How to Calculate Term Insurance Premium?

3 Mins read

Individuals entering the workforce are instilled with a sense of pride and respect as they begin earning members of society for the first time in their lives. As soon as their payment cycle begins, their family members make them understand the importance of financial planning and securing their future. However, you can never predict what life has in store for you. Therefore, to ensure your loved ones’ financial security in your absence, you can choose a suitable term insurance plan for complete but affordable coverage.

Term insurance is a pure protection insurance plan that provides the policyholder’s beneficiaries with a high sum assured in case of the policyholder’s untimely demise. The policyholder will have to make premium payments to the insurance company for the plan’s tenure in a term plan. A failure to uphold the payments will lead to a policy lapse, and your family won’t benefit from the premium payments.

Calculation of Term Insurance Premium

When purchasing a family term plan, it is important to understand how the premium calculation is done, as you can decide how much coverage you need before purchasing the plan. Different life insurance companies follow different calculation methods.

As a policy buyer, before you purchase the term policy online, you can use an online term insurance premium calculator to check the premium rate. Let’s see how you can use a term insurance premium calculator in three easy steps:

  1. You will first have to enter some personal details like your gender, date of birth, details about your life cover, annual income, marital status, etc. Another piece of information that may need to be provided is your smoking habits.
  2. In the next step, enter the amount of sum assured and the number of years you want insurance coverage for. Along with this, clearly mention if your family should receive the money as a one-time lump sum amount or a monthly income. Press enter, and you will be directed to the next page.
  3. In the last step, you will be able to check some term plan recommendations from different insurance providers. You can compare two or more plans to see which one best suits your needs.

Factors that affect the term insurance plan premium:

  • Age: The age of the policyholder is taken into consideration while calculating term insurance premiums as younger policy buyers are less prone to health issues. A younger policy buyer can avail lower premiums as compared to someone in their late 30s or 40s.

  • Occupation: Certain professions are thought of as risky by insurance companies. Therefore, if your occupation involves working under safe conditions, you could be paying a lower premium than someone with a hazardous job.

  • Geographical location: If the location where you live is prone to heavy floods, earthquakes and hurricanes, your term insurance premium rate could be high as your location poses a risk to your life.

  • Lifestyle choices: If you drink alcohol or smoke tobacco, your insurance premium is going to be higher than a non-smoker’s premium payments.

  • Medical history: Your medical history will be considered while determining your premium payments. If you’ve suffered from an illness in the past, you may have to pay a high premium.

  • Family medical history: Even your family’s medical history will affect the premium rates you pay. This is because there could be a chance that you carry the risk of the same ailments.

  • Hobbies: If you’re into adventure sports that could involve some risk to your life, your insurance premium will be high.

Many life insurance companies have provided the life insurance calculator on their website to help potential customers get premium quotes and understand the coverage of life insurance they can get. Using the calculator can be quite beneficial for individuals when purchasing the plan. One can modify the information they provide to understand how different factors affect their premium amount. This will help them plan and make an informed decision when purchasing a term plan.

Before you purchase a term insurance plan, understand how your insurance premiums are calculated. This will help you adjust your premiums as per your needs and your budget so that you do not face any trouble making your premium payments.