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How Is Life Insurance Premium Calculated?

Published On Dec 01, 2021 10:00 AM By InsuranceDekho

The insurance company requires that an individual or business pay a set amount of money as premium on a regular basis in order to obtain and maintain their insurance policy and coverage. When it comes to determining rates, insurance firms take into account a variety of elements, especially in the case of life insurance. These factors include the likelihood of the policyholder filing a claim, medical issues, smoking and other lifestyle behaviours, place of residence, kind of employment, and so on.

A contract between an insurer and a policyholder is called a life insurance policy. The policyholder pays a premium amount at the time of purchase and thereafter at agreed-upon intervals, depending on the frequency and form of payment, to make the contract active.

Using a life insurance premium calculator is simple; you simply enter information such as your birth date, annual income, lifestyle preferences, and gender. Following that, you select a life insurance plan variant, premium payment frequency, coverage amount, and length.

How Is Life Insurance Premium Calculated?

The life insurance calculator will calculate and display the amount of premium due for the desired insurance coverage, as well as a summary of the chosen policy, based on these inputs. Before deciding on a policy that meets your needs and expectations, you can review the life insurance premiums quoted and compare them to those of other policies.

1. Expenses and Profit Margins

The cost of life insurance premiums vary depending on the costs incurred by the insurance company in establishing the policy. Each insurance company has its own cost structures, risk assessment methods, operating costs, and investment returns. They may then provide various premium rates after examining numerous risk cost analysis aspects associated with the insurance applicant.

2. The Underwriting Process and Mortality

The process by which insurance companies determine the amount of life insurance premiums that must be paid is referred to as underwriting. Throughout the underwriting process, age, gender, lifestyle, policy tenure, opted overage, and family medical history are all taken into account. Different insurance companies use different underwriting and risk-assessment processes, and they may charge a lower or higher premium for the same coverage depending on the results. The premium amount is also calculated using an actuarial approach, which is a statistical method for determining an applicant's insurance risk based on the likelihood of mortality at a given age.

3. Contingency Charges

When it comes to determining life insurance premiums, there are several aspects to consider. Contingency charges are a modest addition to the premium. For example, the number of claim settlements cannot be predicted; that is, no one knows how many claims an insurer will get in a given year.

Factors That Determine Premium Calculation

Although you may always use an insurance premium calculator to calculate the rates, the process is also influenced by the following factors:

  • Income
  • Age Residence location
  • The nature of work
  • Ailments and medical history
  • Smoking and other unhealthy lifestyle choices
  • Dimensions and Weight
  • Probability of the insured person filing a claim
  • Dependents and marital status
  • High-risk activities
  • History of travel throughout the world
  • Gender


A decent starting point for short-listing insurance policies should be the claim settlement ratio. This is because a larger ratio ensures that when it comes time to file claims, you will have a better chance of being approved.

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Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.

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