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How to Calculate Premium of your Life Insurance Plan?

dateKnowledge Centre Team dateMay 28, 2021 views322 Views
Life Insurance Premium Calculation | Buy Life Insurance Plan

Buying a life insurance is one of the critical financial decisions of your life and should ideally be one of the first investments out of your income. That also means the moment you start earning you need to decide and buy the best life insurance cover in your budget.

However, let’s not forget that life insurance is a long-term investment. Your first life insurance plan, most likely a term insurance cover, should stay with you till retirement. Thus, if you started earning at the age of 25, you should get a term insurance cover for the next 35-40 years.

That is a very long time, and your life could change dramatically within the first decade. So, the first plan should be such that you can stick with it for a lifetime.

If the premium of the life insurance plan has been a criterion for your investment decision, you should spend some time understanding it. Otherwise, the lowest premium will often sound like a better deal than even the best life insurance plan.

5 Quick Steps to Calculate Life Insurance Premium

You can calculate life insurance premium using the online calculators for the plan. For other plans, you will need to either discuss with an advisor or check with customer care. Using an online calculator is a simple step by step process:

Step 1

Provide your name, contact, lifestyle habits (smoker, non-smoker, alcohol consumption) and income details.

Step 2

Select the amount of cover you need or the amount of money you plan to invest. Ensure that you choose an adequate amount so that you stay protected all the time.

Step 3

Check the base annual premium and select the mode of premium payment (monthly, quarterly annually). Some of the life insurance plans, mostly, term insurance plans like iSelect Star Term Plan also offers limited premium pay option.

Step 4

Select add-on benefits, such as goal protection option (in case of investment life insurance), accidental death and disability covers. Adding riders to your life insurance plan enhance the coverage.

Step 5

Select the premium payment term for the policy and check the final premium that you will have to pay as per the premium payment frequency chosen by you.

Why Should you Calculate Life Insurance Premium?

Premium calculation is an important step in the process of buying a life insurance plan. Calculating the plan’s premium also allows you to compare the plan with other similar investments and helps you choose the best life insurance for your goal.

It also helps you determine if you can afford the full investment in your future goal. If not, you can reduce the plan’s expected maturity value to bring the contribution within budget.

Also, remember that situations specific to individual conditions, like family health history, etc. are considered only after you submit the application. The premium amount shown to you before filing the application is a general premium for the age group with similar conditions.

In case of a pre-existing health condition, the insurer may charge a higher premium for the same amount of cover. A large number of investors leave the application incomplete at this stage. However, you should remember that your pre-existing health condition or family history makes your family vulnerable to the risk of losing you early.

Thus, the fractional increase in the premium amount is a necessity you should still consider buying the plan.

7 Factors Influencing your Life Insurance Premium

Every life insurance plan comprises of a protection element and an investment element in different proportions. Few insurance plans like term life cover with terminal illness covers are pure protection plans without any investment component.

Learn these 14 reasons you might be paying a higher premium.

Thus, the premium for these plans is affected by the factors which increase the risk to your life or health. The most important factors influencing the risk premium of your life insurance plans are:

1. Your Age

Age is the first factor that is considered for life insurance premiums. First and foremost, your age will define if you are eligible for the plan. Most life insurance protection plans, like term and health insurance plans, allow you to buy the policy if you fall within a specific age range. For example, between 18 to 65 years.

Second, as you grow older, your risk premium for the life insurance cover increases. That is because the risk premium is based on mortality rate (rate of death) among the specific age group you belong to.

For example, the term insurance premium for a 22 years old would be lower than a 35-year-old male.

2. Your Health Condition

Your present health is an important parameter deciding your life insurance premium. Health conditions such as height and weight ratio (BMI), pre-existing diseases can increase your risk of early death. Thus, you may have to pay a higher risk premium for the same amount of cover.

Life Insurance Premium Calculation | Buy Life Insurance Plan

3. Health History of your Family

Even if you are healthy at the time of buying the life insurance, you may have a long family history of specific diseases. In such, cases too, your life insurance premium is expected to rise.

4. Your Occupation

Life insurance underwriting principles divide occupations into three to four categories, depending on combination of physical and mental stress on the job. If you are working in a role that involves dealing with heavy machinery, working in a dangerous environment, your life insurance premium would be higher.

If you have a desk job you may have a slightly lower risk. Hence, the premium that you have to pay will be lower.

5. Geography or Location

Location is also a consideration while estimating your life insurance premium. Urban centres, like metro cities and state capitals, may enjoy a lower premium than a rural area.

6. Lifestyle Choices & Habits

Lifestyle choices like cigarette smoking or alcohol usage also affect your risk to life and thus the life insurance premium.

7. Other Factors Deciding your Premium

You can invest in life insurance plans to achieve your future financial goals as well. In such cases, the risk premium is only a small component of the total annual premium you pay. Your life insurance premium will also consider the following factors:

  • Your future goal amount
  • Time: Policy Term
  • Investment Tenure: Premium Payment Term
  • Riders and additional benefits you selected

These factors determine the investment part of the total premium of your plan. So, before you buy a life insurance plan, calculate the premium to figure out how much you will have to put aside for your premiums. Also, you can prepare a monthly budget to accommodate the premiums without much hassle. However, this is possible only when you know beforehand how much amount you will have to pay. There are a lot of reasons you should check your insurance premium before making any decision. Take the help of online life insurance premium calculators to figure out your premiums and to choose the best life insurance plan available as per your financial circumstances, and goals.

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Frequently Asked Questions (FAQs) for Life Insurance

The premium is one of the most important factors to consider before buying a policy. Many people buy a life insurance policy with a high sum assured but are unable to process the premiums for the entire premium payment tenure. You can get a better idea of the premium outgo with the premium calculator available in the 'Tools and Calculator' section of

Life insurance plans come with several riders which increase the efficiency of the policy for the buyer. For instance, if you have a history of terminal illness in your family it would be advisable to opt for terminal illness rider with your term insurance. Riders or add-ons help in customising the standard policy benefits for the requirement of different families. The iSelect term insurance plan comes with a built-in cover for terminal illness, and option for protection against accidental death or disability. You can also opt to cover your spouse's life under the same policy by paying an additional premium.

Insurance companies calculate the premiums based on several factors such as age, gender and occupation.

Age:It is one of the biggest factors that influence life insurance premiums. Premiums tend to be low when the life insured is younger as the chances of contracting diseases is low. Young people also opt for policies with longer tenures and pay premiums for a longer duration, which makes the policy cheaper for young people.

Gender:The insurance premium for women is generally lower when it comes to life insurance plans. Women live longer and pose a lesser risk of a claim leading to lower premiums for them.

Lifestyle habits:The premiums for people who smoke or drink is always higher due to higher health risks.

Policy term:Policy terms are also taken into consideration by insurers while deciding the premium amount. Policies with longer tenure are cheaper as compared to short-duration policies.

Mode of purchase: The platform that you use to buy the policy also determines how much you will have to pay for the plan. People who buy life insurance policies online have to pay lower premiums as compared to offline policies.

Occupation:The nature of your work is an important factor that influences the premium amount. Certain occupations like shipping and mining are considered more dangerous as compared to jobs in services industries. The insurance premium rises with the risk profile.

Processing life insurance claim is a transparent and smooth process with Canara HSBC Life Insurance.

In case of the death of the life insured, the nominee will have to intimate the company by filling a Death Claim Form and sending it to the nearest branch office.

Once the form is received, the claim is registered by the insurer.

After the registration of the claim, the company will send the claims pack along with the related forms such as physicianâ s statement form and employer certificate that need to be filled.

Along with the duly filled forms a few documents such as original [policy document, death certificate, copy of bank passbook, hospital or treatment records, photo identification and address proof have to be provided.

The claim is processed on the submission of relevant documents. Once the documents are verified, the claim amount is released post all due diligence.

Household expenses rise with age. The cost of children's education increases along with other lifestyle expenses. The iSelect term plan offers an option to increase the cover according to the life stage. If opted, the insurance cover increases by 25% at every 5-year terminal till the 20th policy year.

Even though a life insurance policy is bought to protect your family in your absence. There are chances of the claim being rejected due to several factors.

False information: If the policyholder provides false information or conceals important information while buying the policy, the insurer has the right to reject the claim after his/her death.

Type of death: Deaths due to suicide in first policy year, intoxication or pre-existing disease is not covered under life insurance.

Premium payment: The payment of premiums on time is of utmost important to avail the benefits of life insurance. Life insurance policy may lapse on the failure to pay the premiums

Nominee details: An insurance company can put the claim on hold if the nominee details have not been filled or not been updated by the policyholder.

Suicide: If the life insured commits suicide within 12 months of buying the policy, the insurance companies generally pay 80% of the total premiums paid.

Buying life insurance online is not only safe but a better option. Online life insurance policies have lower premiums and the individual is not required to visit the insurer's branch or a bank. Online insurance policies also offer higher benefits. Customers should, however, buy online policies only from credible insurers and should check for SSL certificate on the website to ensure that the website is legitimate.

The cost of life insurance policies varies depending on factors like age, gender and occupation. The average cost of life insurance plans, especially term plans, is very low compared to the amount of coverage offered.

An individual is allowed to have multiple life insurance policies. People opt for more than one policy to increase the cover or avoid claim rejection. In case of multiple policies, even if the claim is rejected by one insurer, the beneficiaries may receive the benefit from a different insurer.

Life insurance policies are of different types. In the case of unit-linked or endowment policies the policyholder receives the maturity benefit at the end of the policy term. However, in the case of term insurance plans, there are no maturity benefits. The death benefit is only paid out after the death of the life insured.

When you buy life insurance, the insurance company asks for the nominee details. Only the person named as the nominee in the policy can cash out a life insurance policy in case of death of life insured.

A life insurance policy is generally taken for a specified period. After the policy duration of a term plan gets over, the policy simply terminates and ceases to exist. However, in the case of unit-linked plans or endowment, you can use the policy as a tool for retirement planning and the accumulated corpus is used by the insurer to pay you monthly amounts for your entire life.

If a policyholder purchases a term plan for 25 years and dies during the policy term. The family receives the death benefit. In the case of iSelect term plan, the policy provides four payment options to the beneficiaries. If the regular payment options are chosen the policy works as a source of regular income.

It is a popular misconception that life insurance is only for accidental deaths. A term life insurance plan like iSelect also covers terminal disease along with death. A terminal illness cover is important as health insurance pays only for the cost of treatment and hospitalization, but a terminal illness cover pays you a lump-sum amount which takes care of other expenses. On the other hand, unit-linked policies such as Invest 4G cover death and also provide decent returns for other financial goals such as buying a house of child's education.

It is ideal to buy life insurance in your early 20s because it’s is the time when people have just started with their professional life and so there are lesser responsibilities and financial liabilities to take care of. Also, if you buy life insurance at this age, you will be paying relatively lower insurance premiums since it’s a due fact that mortality rate in case of young people is low. And that is why insurance companies offer lesser premium rates to younger people as they think that they are most likely to be fit and healthier with less chances of filing a claim in future.

Once you have cancelled your life insurance policy, you will instantly lose your life insurance cover. Afterwards, your insurance company will get in touch with you and ask for valid reasons regarding the cancellation of your policy. In case you cancel your life insurance policy within the grace period, i.e. 15 to 30 days, depending on your insurer, then insurance company will reimburse the premium amount paid by you. But, no refunds will be paid to you if the policy is cancelled after the grace period.

Yes, you can take life insurance under Married Women’s Property (MWP) Act, 1984 only if you are a married man and a resident of India. Buying a life insurance plan under MWP Act would be helpful in saving your family’s financial well-being when you are not around. As per this policy, only wife and children would be eligible to receive the death benefits. You can also buy a policy if you are a widower or a divorcee. However, in that case, you can give your child’s name as your beneficiary. It is very simple to buy a life plan under MWP Act. All you need to do is to fill up an MWP addendum while purchasing an insurance policy.

Yes, there are different payment options for you to pay premiums. Here’re some of them

    1. Regular premium payment option – This premium payment option allows you to pay premiums equal to your policy term either monthly, quarterly, half yearly or annually.

    2. Single payment option – Through this premium payment option, you can pay the lump-sum amount in one single payment.

    3. Limited payment option -In this premium payment option, you can pay premiums for a specific period of time less than policy term either monthly, quarterly, half yearly or annually, but benefits of insurance can be enjoyed for a longer period of time.

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