Did you know that the premium would differ for each person? Let us discuss the factors that affect term insurance premiums.

A happy family enjoying together and feeling secure after buying term life insurance

When we decide on buying a term insurance policy the first thing that comes to our mind is the premium amount to be paid. People are always searching for ways to reduce their premiums. They opt for a policy that has a lower premium amount. Before purchasing a term insurance policy it is important to understand certain factors that affect term insurance premiums.

What are the Factors that Affect Term Insurance Premiums?

Let us discuss the factors that affect term insurance premiums.

Let us understand it better with a scenario. Arjun and Nisha decide to take a term insurance policy so they visit the insurance website to know their premium rates. They were surprised to find that their premium rates were different.

Let us figure out why?

1. Type of Policy Chosen:

One of the important factors that affect term insurance premiums is the type of policy you choose. Let us see the types of policy available;

  1. Endowment policy
  2. Whole life insurance plan
  3. ULIP plans
  4. Term plans

Endowment plans are not used widely as they are outdated and less popular. The ULIP plans is more of an investment plan with a life cover. The Whole life plan is quite popular, but they are more expensive than the term insurance plan. The term plan is the purest form of life insurance. The premiums are lower. Here you pay for the insurance and if the policyholder dies the insurance companies will pay the death benefit, but if the claim is not made then the amount cannot be retrieved.  So the above-mentioned plans determine the amount of insurance premium to be paid for life insurance.

If the policy issued has larger benefits the premium will be higher and if the policy has fewer benefits the premium will be lower.

2. The Policy Tenure:

One of the factors that affect term insurance premiums is the tenure of the policy. Policy tenure refers to the number of years you will be covered and until what age you want your policy to be active. It may seem that the term plan with longer tenure has a higher premium, but in a way, it is beneficial and economical. The longer the tenure the higher the benefits since you are paying it for a long time. Shorter-term plans seem to be less expensive, but they are not economical as it looks and also has fewer benefits.

For example, Arjun chooses a plan with 30-year tenure and Nisha chooses a plan with a 10-year tenure. Arjun’s policy will hold higher benefits with high sum-assured money at the time of claim.

3. Sum Assured:

The sum assured is also one of the factors that affect term insurance premiums. The total value of the insurance policy at the time of purchase is sum assured. The sum assured is the amount paid by the insurance company at the time of claim to the nominee under unfortunate events like death, If Arjun is looking for a higher sum assured then his premium will be higher. If Nisha is looking for a lower sum assured then her premium will be lower.

4. Add-on Benefits or Additional Rider Benefit:

Add on benefits that you avail in your policy is also one of the factors that affect term insurance premiums. A standard term insurance policy comes with only the sum assured. But if you wish to have certain additional features like waiver of benefit, accident benefit, critical illness cover benefit, permanent total disability benefit, income protection benefit, etc. They are added as add-on benefits. These benefits will cost you a higher premium. But if you do not wish to get these add-ons the premium will remain the same.

5. Age of the Insured:

Ageis one of the important factors that affect term insurance premiums. If you are younger the premiums paid will be lower. If you are old the premium constantly keeps rising.

For example, Arjun is 42 years old and has to pay a higher premium. Nisha is 30 years old, so she has to pay a lower premium.

6. Gender of the Insured Person:

Another important factor that affects the term insurance premium is gender. There is a difference in premium amounts for males and females. According to insurance companies, women have a longer life span than men so the premium is lesser for women than men. A male has to pay a higher premium, whilst a female of the same age will pay a lower premium amount.

For example, if Nisha is 30 years old her age will be considered as a 26-year-old male. So females have an advantage while buying term insurance.

7. Lifestyle and Habits of the Insured:

The lifestyle and habits of a person are also considered as one of the factors that affect term insurance premiums. If the person has a habit of smoking, use of tobacco products, excessive alcohol drinking, then the life span of a person is affected drastically. This in turn affects the term insurance premiums.

If you are a smoker the insurance company will either charge you heavily or will reject the claim. A blood test will be taken to determine the cotinine levels in your blood. If the level exceeds the normal amount then your premium will be affected. Cotinine is a byproduct of nicotine that is present in the blood of a smoker. So try to quit smoking to lead a healthier life and reduce the insurance premium amount. You will be surprised to find the difference in insurance premium amount between a smoker and a non-smoker.

For example, if Arjun has a smoking habit his premiums will be way higher than Nisha’s.

8. Personal Health Status and Family Health Status of the Insured:

Your health status is one of the most important factors that affect term insurance premiums. How healthy are you? If you are a healthy person with no ailments then you are benefitting greatly as the insurance premium will be lower. If you have any pre-existing diseases like diabetes, blood pressure, asthma, etc, then you will be charged a higher premium. If you are aware of your ailments, please do declare them at the time of purchasing the insurance policy.

The insurance company will usually ask you for an FMR or Full Medical Report if you are buying term insurance. They would make sure if you are fit and healthy. It is always best to purchase term insurance that asks for a medical check-up because it will be helpful in the future during the time of claim.

Obesity is also considered a factor that affects the term insurance premium. Because an obese person has a high chance of getting heart-related problems and diabetes. So your health status determines the amount of insurance premium you will pay.

Your family health status will also affect the term insurance premium. If your family has a history of diabetes, heart problems, cancer, etc, then these factors are also taken into account to charge a higher premium. Since these diseases are hereditary you are more likely at risk to get them. So it is important to disclose all health-related issues while purchasing a term insurance policy.

9. Payment Type During the Claim:

The ninth factor that affects the term insurance premium is how do you want your sum assured to be paid at the time of claim. Let’s understand it better.

For example, if Arjun who is the policyholder gets a type of term plan where after his death the entire sum assured will be paid to the beneficiary by the insurance company as a lumpsum one-time payment. This type of plan costs a higher insurance premium. But instead of a one-time payout if he opts for a plan where the sum assured is dispersed and given to the beneficiary for say 10 years the insurance premium will be lesser. This type of plan will turn out to be like a stream of income for the beneficiary.

10. Occupation of the Insured:

Another factor that affects the term insurance premium is the occupationof the insured person. If the nature of the job is too risky then the insurance premiums will be higher.

For example, Arjun works as a professor hence his premiums will be lower and Nisha works as an air hostess, which is a more challenging job that involves risk so she will be charged a higher premium.

Now considering all these factors, both Arjun and Nisha are clear as to why their insurance premium differed. Now they have no doubts and are ready to purchase a suitable term plan according to their needs.

To Conclude:

Considering all the factors you have to make the right choice while purchasing a term insurance policy. Your intentions should never be to reduce the insurance premium, but to find a suitable type of term insurance policy that will give you maximum benefits. Never buy an insurance policy just because the insurance premiums are cheap.


Prateek Mahesh

Prateek has 17+ years of experience writing in Investment Strategy and Sales for Life Insurance. He has done MBA in Insurance and Investment.

Their aim is to educate people on various insurance topics so that they can make wise decisions.

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