How are Life Insurance Costs Calculated?
If you're considering purchasing life insurance, you might want to know how to get an idea about a level of cover that may be appropriate for your needs. You may also be curious to know how monthly premium costs are calculated.
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're considering purchasing life insurance, 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.
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.
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.