How is your Term Insurance Premium Computed?

Term Insurance

It is not uncommon to want to stay away from adversity as much as possible. Everyone has a strong desire to protect their family from financial difficulties. This desire becomes even stronger when you are the only earning member of the family. It is extremely important to protect your family’s financial future from the possibility that you might not be around to be a partof it. Term insurance plans are the right way to do that.

But you need to know everything there is to know when it comes to buying term insurance. Most importantly, you should know how much premium you have to pay to buy a term insurance plan. To know that, you need to know how your premium is determined. Hence, the real question that needs to be asked is “How does the insurance company calculate the premium for your preferred term plan?”

Calculation of premium

Ideally, the premium is calculated based on a basic formula. This formula is the rate of premium offered to you,multiplied by the selected cover amount. This rate of premium differs for each individual policy buyer.

Term insurance premium rates are determined by statistics and mathematical calculations made by the underwriting department of the insurance company. When calculating the term insurance premium, risk plays an important role. Risk refers to the likelihood of a claim being made by an insured person. The lower the risk of a claim from the policyholder, the lower the premium. The risk of claims is determined using a wide range of factors.

These factors affecting term insurance premium include:


Age is the first and most important factor determining your premium amount. The older you are, the higher your premium will be when you apply for a term insurance plan. This is because the older you are, the higher the risk to insurers. This high risk is due to less-than-ideal health at an older age. This means that they might receive a claim from your policy soon. This increases the chances of the company having to pay the sum assured. Hence, the company will charge you a higher premium. As the premium price increases with age, it is always advisable to go for a term insurance plan as early in your life as possible.


Studies show that women live an average of five years longer than men. Therefore, insurance companies feel that insuring a woman’s life is less risky than insuring a man. For this reason, the premium charged to men is much higher than for women.


The business in which you are involved also plays an important role in determining your premium amount. There are some businesses that insurers consider to be riskier than others. For example, soldiers, pilots, fishermen, and miners are considered to be in more dangerous occupations, while office workers, shop workers, teachers, etc. do desk jobs that are considered to be in safer occupations. People who work in a safe environment pay a lower premium compared to others.

Geographical location

The place where you stay will also play an important role in determining how much you will be charged for your term plan. If you are in a place where natural disasters such as earthquakes, tsunamis, and hurricanes are more likely to occur, you will pay a higher premium because you are more likely to be affected by these incidents than people living elsewhere.

Height and weight

Insurance companies will consider your height and weight to determine if you have a healthy body mass index. If you are overweight, you are more likely to suffer from weight-related medical conditions such as respiratory problems, heart disease or diabetes. This will affect the premium amount charged to you.

Medical history

Your past medical history will also have an impact on your premium. If you have had any serious illness in the past or you are currently suffering from an illness, the premium you have to pay will increase. Illnesses, such as type 1 diabetes, heart disease, cancer, can increase the value of the premiums you pay. For example, most insurance companies do not offer you a plan if you have previously had cancer. But if you have lived without recurrent signs for at least 5 years, they may offer you a plan at a higher premium.

Now that you know all the factors that affect the calculation of premium for term insurance, all you need to do is remember them while you buy a term plan. For some extra help, you can use a term insurance calculator to figure out the right premium for you. Based on that, you can compare plans and buy the right one.