How are life insurance premiums calculated?

If you compare life insurance quotes with us and are considering purchasing a policy, you may be curious to know how life insurance premiums are calculated. Like any type of insurance, the amount you pay for your cover depends on a number of factors.

Some factors insurance providers will consider when pricing your policy include:

Amount of cover

The more cover you want from your policy, the higher your premiums are likely to be. It's therefore a good idea to work out how much cover you really need, so you're not paying more than you have to.

Use our life insurance cover calculator to get an idea of the level of cover that may be appropriate for you. 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 suggests a figure that may give you an idea of the level you require.

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Length of cover

When you apply for life insurance quotes, you will be asked how long you'd like your cover to last. The longer you choose to have cover for, the higher your premiums will generally be. Similarly, if the policy term protects you to a later age, the cost will be greater than a policy that ends at an earlier age. For example, a person taking out cover for 30 years, from 20 years old to 50 years old could be quoted cheaper premiums than a person taking out the same policy term from 40 years old until 70.

If you choose a whole of life policy, which provides cover until you die, the cost of your premiums will usually be more expensive than if you choose a policy with a specified term. This is because unless you cancel the policy the provider knows they will eventually have to pay out.

Your policy type

The type of policy you choose will have a bearing on your monthly premiums. Mortgage protection insurance (also known as decreasing term) will generally have lower premiums, as the size of the payout reduces over time. With a level term policy, the amount your loved ones would receive after your death remains fixed throughout the policy term.

As mentioned previously, whole of life policies will often demand higher premiums due to the fact the provider is providing cover for the rest of your life, rather than a fixed term, say 25 years.

Critical illness cover

If you choose to add critical illness cover to your life insurance policy, then an additional cost will be added to your premiums.

There are two options when it comes to adding critical illness cover to your term assurance policy. You can integrate cover into your policy, which means only one claim can be made (when you're diagnosed with one of the provider's named illnesses or when you die). Alternatively, you can purchase it independently, meaning two claims can potentially be made, one upon diagnosis of an illness covered under your policy and one at the point of death.

Both options will increase the price of your premiums but choosing to purchase critical illness cover independently is often the more expensive option of the two.

Your age

The younger you are when you purchase life insurance, the cheaper your premiums should be. This is because younger people are less likely to die during the policy term, lowering the risk of the insurer having to pay out.

So, as an example, a 25-year-old buying £150,000 worth of cover over 20 years could expect to pay significantly less than a 50-year-old buying the same cover over the same term.

How to calculate life insurance
Factors about your policy

Your health

As you may expect, if you are in good health, your premiums may be lower than if you have pre-existing medical conditions. The insurance provider calculates an individual's life expectancy and the likelihood of having to pay out during the selected term..

If you do have any pre-existing medical conditions, or a family history of certain medical conditions, you will need to declare these, and you may be quoted a higher premium as a result.

It is important to note that, if a life insurance provider deems you to be a higher risk than they are looking to insure they may decline to offer you cover. Nonetheless, it is essential that you provide insurers with complete and correct information - if you hold back any relevant information at the time of taking out the policy, the insurer will be within their rights to reject a claim on your policy, meaning that your dependants would not receive a payout in the event of your death.

If an insurer does decline your application, it is worth shopping around as each insurance provider uses their own set of criteria and a different provider may still offer you cover.

Your lifestyle

If you are overweight or smoke, you may be charged more for your life insurance cover than a non-smoker or a person with a Body Mass Index (BMI) in the healthy weight range.

Your hobbies

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

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.

Your occupation

Certain professions are deemed 'high-risk' and so may result in higher premiums. Examples of these include soldiers, fishermen, firefighters, pilots and offshore oil or gas industry workers.

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While this is not an exhaustive list of the factors that a life insurance provider may consider, and we cannot say precisely how much weight different insurance providers apply to each factor, this should help give you a general idea of how life insurance costs are calculated.

If you'd like to find out more about life insurance - including what it is, which types are available, how to choose the right policy for you, and more - take a look at our life insurance guides. Or, if you're ready to look for a policy, compare life insurance quotes today.


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