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7 Factors Which Affect Your Term Life Insurance Premium

dateKnowledge Centre Team dateJanuary 22, 2021 views190 Views
7 Factors Which Affect Your Term Life Insurance Premium

Term life insurance is such a necessity in your financial life that you should aim for the least possible cost while ensuring that you have a cover. Several factors affect your term insurance premiums. While some of these factors will apply to you individually, others apply to the larger group.

Here are the seven major factors which affect the premium of your term insurance plan:

1. Your Age

Age is one of the major factors while deciding the premium for life cover. Life insurers divide the population into age groups with similar mortality rates. The mortality rate in turn defines the amount of premium applicable to your life cover.

Since mortality rate increases with age, the older you are the higher your term life insurance premium will be. That is why buying term insurance cover early in your life is more cost-effective in the long run.

2. Gender

This is also related to mortality, women, in general, have a longer lifespan across age groups. Thus, if you are a woman, your term insurance premium is likely to be lower than men in the same age group.

3. Occupation

Occupation defines your living environment and health at multiple levels. Some occupations are physically more stressful than others. Physically stressful occupations may result in different life-expectancies across the age groups.

Thus, life insurance companies classify occupations in three categories based on the risk they pose to your life:

  • Category 1: Specialized or Highly Skilled jobs like surgeons, teachers, drivers, etc.
  • Category 2: Semi-Skilled but without physical labour. Most desk jobs fall in this category
  • Category 3: Unskilled physical labour jobs, like mining, heavy manufacturing,

The second category occupations are considered to be least risky, and thus enjoy lower premium for life insurance cover.

4. Residential Region

Regional mortality rates may differ. If the difference is large enough, it may impact the life insurance rates for that area. Thus, regional rates are directly reflected in the overall life cover premium.

If your residential area is in a high seismic zone or faces floods or tsunamis, your life cover premium is likely to be higher.

5. Lifestyle & Health

Lifestyle habits like smoking, use of other tobacco products, alcohol, also affects your life expectancy and thus term insurance premium. So, a healthy lifestyle will not only give you a happier life but also a cheaper insurance cover.

Similarly, your existing health conditions or family’s medical history also affects your life insurance premium. One of the most common health conditions is diabetes, which may lead to many other illnesses in future.

You may see a higher term insurance premium in case of an existing health condition. However, in case the condition is volatile, the insurer may also offer the cover after excluding the death due to the health condition.

6. Add-on Benefits & Features

You can add multiple additional benefits to your term insurance cover. Some of the important add-on benefits are:

  • Accidental Death Benefit

    In case of accidental death, the families have to spend an additional sum towards legal and medical processes. Thus, an additional sum of money as claim benefit helps the family recover these costs.

  • Accidental Disability Benefit

    This is an important benefit to have in your term insurance plan. You can add this benefit to your policy in two ways – 1. Ensuring a waiver of premium, or 2. Paying a sum of money in case of disability.

  • Cover Against Dire Diseases

    Some diseases like cancer, heart failure, etc. are unpredictable in their growth, treatments and outcomes. Plus, the treatment for such diseases could be very expensive. Thus, an insurance cover which can provide financial assistance in case of diagnosis of any of such conditions will help.

    At the same time, you can also choose a different plan option with any of the following features, which may increase your premium:

  • Term plan with return of premium

    This plan will return all your premiums if you survive the policy term

  • Whole life term plan

    Whole life term plan has a higher premium due to the extended policy term (another factor affecting premium). This plan continues till the policyholder attains the age of 99 or his/her death.

7. Policy Term

The policy term is an important factor in premium estimation. Life insurance policies usually charge a level premium, which is applied throughout the policy period. This premium is applicable regardless of your age after policy commencement.

The longer you want the cover to continue, the additional premiums of later years will spill over to your current year. Thus, keeping your premiums fixed for the tenure of the policy. Also, there are several other reasons that may lead you to pay a higher premium.

This is why premiums for a whole life term plan is the highest among all the categories.

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Frequently Asked Questions (FAQs) for Term Insurance

This being a term plan doesn't offer any payout after maturity or expiration date.

Each insurance company has its own term insurance premium calculator. If you want to check out the premium quote, go for the iSelect Star term plan calculator. It gives a premium amount based on your age, gender, habits, education, and annual income.

You can purchase an iSelect Star term plan anytime between 18 to 70 years of age.

It depends on your needs. For example, if you want to cover a child's education or wedding expenses, you have to include them in your coverage. Your premium will be calculated accordingly.

If your key purpose is to give your Family financial protection, go for the term insurance plan. And if you want some savings, in the end, go for a traditional life insurance plan.

Go for at least 12 times cover than your annual income. Or you can go as far as 20 times coverage as per your needs.

The right time is when you don't have anything to keep your Family safe from financial storms, and they rely on you for financial needs.

If you are unable to make the payment or suffering from a terminal illness, a term plan pays a part of the sum insured to treat your disease.

Term insurance riders are attachment or endorsements made, while taking the term insurance policy, as a supplementary coverage to policyholders. Apart from the core death benefit, term insurance riders offer below-given additional benefits:

  • Accidental Death Rider When a person suffers from a terminal illness, his/her family ends up spending a significant amount in treatment and medical expenses. Accelerated death rider pays a part of the sum insured in advance to cover such costs and save the family from running out of cash.
  • Accidental Disability Rider If the policyholder can't pay the premium because of an accident or permanent disability, a sudden disability this pays the premium on behalf of the policyholder till completion of policy term or for a defined duration.
  • Critical Illness Rider If the insured person gets a heart attack, cancer, or any other critical illness, this rider pays a lump sum on valid diagnosis.
  • Premium Waiver Rider If the policyholder is unable to make payments due to income loss or disability, a premium waiver rider waives off all future premium payments. And the term policy remains active until the expiration date.
  • Income Rider: The rider ensures that your family receives regular income + sum insured in case of unfortunate demise of life insured.

Anyone can go for life insurance as it offers some savings after the maturity date, but it doesn't cover the protection of your family . The best term insurance plan is solely designed for taking care of loved ones if something happens to you. Term plans act as a shield between your family and sudden financial fall. They make sure that your family lives a healthy life even after you. With a little amount paid per year, you can be worry-free from the family's financial conditions.

Questions that you need to ask while buying Term Insurance?

  1. 1. Amount of premium you have to pay based on your age, habits, education, and monthly income
  2. 2. The total number of benefits covered in the term plan. Do they include benefits that you care about the most?
  3. 3. How to save money on tax if you pay for the term plan?
  4. 4. Do they offer regular income options?
  5. 5. Can you change the coverage and premium in the future?
  6. 6. Does the claim consider valid if death occurs outside India?
  7. 7. Which kind of death is not covered by insurance?
  8. 8. Can NRIs take term insurance? If yes, what are the conditions?
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