A life insurance premium is the payment you make as your portion of the cost of an insurance policy. You can usually pay your life insurance premium monthly, quarterly, semi-annually, or annually. If you do not pay your premium, your life insurance policy will be cancelled and your beneficiary will not receive the death benefit.
The amount of your life insurance premium basically depends on two things: who you are and what you want.
Many life insurance companies use a process called underwriting to set your life insurance premium. This means they evaluate factors like your age, health, and lifestyle (as provided by you in an application) to classify you at a certain level of risk. The more at risk you are for dying, the worse your classification and the higher your premium.
Criteria life insurance companies consider to set your premium include:
Other factors that can increase your premium include:
Once your life insurance premium is determined, the life insurance company cannot raise it based on your declining health. However, if your health improves or if you stop smoking, you can sometimes get reevaluated to reduce your premium. Some life insurance plans may vary your premium based on your aging.
There are a variety of life insurance policies to choose from and each type may charge a different premium. Picking the right life insurance policy means making sure you can afford the premium, so it is important to understand the differences.
Amount and length of policy:
The higher you want your life insurance policy to be worth, the more your premium will be. Term policies usually offer the lowest premium for the highest death benefit. If you choose a term policy, the longer the term you choose, the lower your premium will be.
Type of policy:
Generally, term life insurance premium is less expensive than permanent life insurance at the beginning. But with some term life insurance policies, your premium will increase as you age. Permanent life insurance premiums usually stay the same through the entire policy. Premiums for group life insurance (such as plans offered by your employer) have a set premium that everyone at the company pays, regardless of individual classification. The premium is sometimes paid by your employer. Some people who get group life insurance from their employer also purchase an individual life insurance policy for additional coverage.