How Is Term Insurance Premium Calculated?

The Coronavirus pandemic has made us understand that life is uncertain and anything can happen tomorrow. What if something untoward leads to your absence anytime soon?

Do you have enough savings that can help your family to maintain their lifestyle? If not, then they will have to face a monetary strain or be dependent on someone else.

To prevent such situations, it is advisable to invest in a term insurance policy. If you want to know more about what is term insurance plan, keep reading.

A term policy is a pure protection plan that provides the death benefit to the policyholder’s family if he or she dies during the policy duration. It can act as an effective income replacement mode in case of the policyholder’s untimely demise.

A term plan provides a high sum assured for a specific duration at a pocket-friendly premium. When you buy a term plan online, you need to consider aspects.

Such as your age, the sum assured, tenure, and lifestyle habits like smoking and the consumption of alcohol. These factors play a crucial role in influencing the premium of your term policy.

Apart from offering the cheapest premium compared to other life insurance policies, a term plan’s cost remains stagnant throughout its tenure.

You can use a term plan calculator to get an idea about the estimated premium that you will need to pay every year. To find out the premium, you need to enter a few details in the calculator. Some of these are:

  • Name
  • Date of Birth
  • Gender
  • Smoker/Non-smoker
  • Policy tenure
  • Sum assured

Factors that determine the term plan’s premium

An insurer considers various aspects while calculating your term plan’s premium. These include:

  1. Age

It is one of the main factors that can affect the premium of your term plan. If you purchase the term plan at a young age, the premium is significantly low.

When you are young, there are lower chances of acquiring life-threatening diseases. Additionally, the rate of mortality is on the lower side. So, you can get a term plan at an affordable  premium during this stage of life.

  1. Gender

There is a major difference in the life expectancy of men and women. It is believed that women will live longer. Therefore, insurers charge women a lower premium compared to men.

  1. Smoking

The premium can increase significantly if you are a smoker. It is because you are at a high risk of getting life-threatening diseases.

While applying for a term plan, you need to inform the insurer about this habit so that your family does not have to face any problems while applying for a death claim.

Usually, smokers pay double the premium compared to non-smokers.

  1. Medical history

People with a medical history are more likely to die soon than healthy individuals. Therefore, the premium of a person with a history of any medical problems will be costlier.

As and example.  A person who has a chronic illness such as Diabetes will  generally pay higher premiums.  Life insurance for type 2 diabetes is obtainable, but will be more expensive compared to a non diabetic.

Besides this, he or she may have to undergo a medical checkup so that the insurer can determine the premium of the policy.

  1. Occupation

Your profession also influences the premium of your term plan. If you are in a risky profession like working in the mines or oil and gas sector, the insurer will charge you an expensive premium.

With different forms of term plans available in the market, it can become a daunting task to compare and finalize an ideal policy.

Therefore, you can use a term plan calculator to search for a policy that meets your needs.

It is advisable to buy an online term plan at a younger age to get it at a lower premium.