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How are Life Insurance Costs Calculated?

If you compare life insurance quotes with us and are considering purchasing a policy, you may be curious to know how monthly premium costs are calculated. Essentially there are five key factors that insurance providers will consider when pricing your policy.


How can I calculate how much cover I need?

Use our life insurance cover calculator to get an idea of the level of cover that may be appropriate for your needs. The calculator takes your annual salary and multiples it by the number of years you wish to cover your dependants. It then factors in any outstanding debts and give you a figure that may give you an idea of the level you require.

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How is the cost of your cover calculated?

If you compare life insurance quotes with us and are considering purchasing a policy, you may be curious to know how monthly premium costs are calculated. Essentially there are five key factors that insurance providers will consider when pricing your policy.

  • Your age
  • Your selected cover
  • Your selected term
  • Your medical history
  • Your lifestyle

If the insurance provider believes there is a low expectation of paying out a claim and there is a relatively low amount of cover selected, the price of the premium required to be paid will be less.

So, a 25 year old buying £150,000 worth of cover over 20 years could expect to pay significantly less than a 40 year old buying the same cover over the same term.


Factors about your policy

While we cannot provide exact information regarding which factors different insurance providers use in their calculations, we can give you an overview of some of the most common variables that life insurance providers tend to take into account.

Policy cover

As you'd expect, life insurance policies with higher levels of cover will typically have higher premiums than policies with lower cover. In addition Mortgage Protection Life Insurance will generally have lower premiums than Level Term Life Insurance as the size of the payout reduces over time.

Policy type

Some polices (such as Over 50's Whole of Life policies) are guaranteed to pay out when death occurs. As such, pound for pound, the cost of cover is greater. Similarly, if the term of the policy is longer therefore protecting you to a later age, the cost will be greater than a shorter term policy that ends at an earlier age.

Critical illness cover

Purchasing Critical Illness Cover alongside your life insurance policy will, of course, result in a higher cost overall.

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Factors about you

This is not an exhaustive list of the factors that life insurance providers may consider, this should help give you a general idea of how life insurance costs are calculated. It is essential that you provide insurers with complete and correct information.

Your medical history

You will need to declare your medical conditions and any family history of certain conditions. Depending on individual and family history you may be asked to pay higher premiums.

Your lifestyle

An insurance provider is also likely to ask certain questions about your lifestyle; for example whether you smoke or are overweight.

Your occupation

Certain professions are deemed high-risk and are generally associated with higher premiums. Examples of these include soldiers, fishermen, firemen, pilots and off-shore oil or gas industry workers.

Your hobbies

Similarly, if you engage in high-risk activities in your leisure time; such as rock climbing or sky diving, then your premiums may be higher.

Your age

Younger people can generally expect to pay lower premiums than older people.

Foreign travel

If you regularly travel to destinations deemed to pose an increased health risk; for example countries with high levels of tropical diseases, this may affect your premiums.

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