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.
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.
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.