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Calculate your term insurance premium based on following factors

Calculate your term insurance premium based on following factors

A term insurance plan is one of the most important plan which promises financial security in case of premature death. It is also one of the cheapest life insurance plans where you can buy a high sum assured at lower rates. Despite low premiums many of you wonder how the premiums of the plan are computed. Well, don’t wonder too much. The premium of a term insurance plan depends on a lot of factors. If you know these factors you can understand the calculation of term insurance premiums. So, do you know these factors?

No? Let’s unravel them –

Factors affecting term insurance premium


The first and the most important factor determining your premium is your age. Your age determines your mortality risk (risk of death). As such, premiums are charged based on your age. Higher your age, higher your mortality risk and higher would be the premiums charged. The opposite is applicable for lower ages.

Sum Assured

The amount of coverage you take also affects your premium. A higher sum assured entails a higher premium and vice-versa. This can be understood with a simple fact. The quantum of coverage you choose determines the quantum of risk the company takes. The higher the risk the company takes, the higher the premium and vice-versa.

Term and premium payment term

The term of your plan affects your premium. If you opt for a higher term your premiums per thousand Sum Assured are lower. It is because the costs involved in the policy are spread over a longer tenure. As such, the annual premium contains a lower percentage of the costs and is, thus, low. Similarly, the premium paying term is also influential in determining your premium. For regular premium plans the premium is lower compared to limited premium plans.

Medical history

Your medical history determines your health and your health determines your mortality risk. It, therefore, has a direct influence on your premium rate. If you are suffering from any medical ailment or if you have earlier undertaken treatments for medical complications, your premiums would be increased to account for the higher health risk. For instance, diabetics or people suffering from high BP are charged a higher premium.


Believe it or not but your occupation also affects your premium calculation. This is relevant in case you have a risky job. If you are into mining, aviation, armed forces, etc., your mortality risk increases. That is why premiums are increased to compensate for the high mortality risk.

Lifestyle habits

If you are addicted to tobacco or alcohol, it is bad news in the context of term insurance premiums. Since these addictions harm your health, they increase your mortality risk and also your premium rate.

The plan’s pay-out benefits promised

Term plans, usually, don’t have a maturity benefit. If, however, you choose a return of premium plan wherein the premiums paid are returned on maturity, the underlying premiums are higher. Similarly, in case of death benefit too, the pay-outs you choose affect your premium rate. If you choose to receive the death benefit in lump sum, premiums are lower. If, on the other hand, you choose to receive the benefits in instalments, the insurance company’s administrative costs increase. As such, the premiums are increased to pay for the higher costs.

Riders selected

Riders are additional coverage features which can be added to your term plan to increase its scope of coverage. Needless to say, as the coverage increases, so does the premium. Each rider comes at an additional premium. So, adding a rider means an increase in the premium payable. Some popular riders include –

  • Accidental death benefit rider
  • Critical illness rider
  • Terminal illness rider
  • Premium waiver rider, etc.

Read more about Should I buy term insurance riders

So, if you want to find out the premium of your term insurance plan, consider these factors. They contribute towards the calculation of your premium. While some factors are beyond your control (like age, occupation, medical history, etc.), you can control other factors and lower your premiums. For instance, you can quit your addictions, choose fewer riders or choose a higher policy and premium paying term to lower your premium outgo. So, consider these factors when buying a term insurance plan and try and reduce your premium amount.

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