How Are Life Insurance Premiums Calculated?

With life insurance quotes, you can compare policies and coverage. You also learn what you can expect to pay for your life insurance premium. Here's how it is calculated.

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How Are Life Insurance Premiums Calculated?

When you are comparing life insurance policies, you may wonder how your life insurance premium is determined especially if you notice a lot of difference between you and other people in your family. Life insurance premiums are very specific to your health, lifestyle, and needs, which means they are going to range widely from one person to the next. Yet, it is possible to buy affordable life insurance in most cases, and knowing how premiums are calculated can help you to do that.

What Is a Life Insurance Premium?

A life insurance premium is the amount of money you pay each month or year for the life insurance policy. This is your out-of-pocket cost. The premium goes to the life insurance company who then uses a portion of it to help fund your death benefit (the money paid out if you die while the policy is in place) and the other parts cover your administration costs. In some policies, such as whole life insurance, a portion of your premium is used to pay into a cash value investment option.


Life insurance companies use a great deal of personal information about you to determine how to charge you for life insurance. This can range widely based on your health. Keep in mind, they are specifically after information that may indicate you are at a higher risk of dying in the first few years of the policy. Those who have a shorter life expectancy are likely to pay more for their life insurance policy.

How Are Term Life Insurance Premiums Calculated?

Term life insurance premiums are very much dependent on how likely you are to die during the term itself. For example, if you purchase a 30-year term life insurance policy and you are very young and healthy, you are less likely to have to pay as much as someone who has an illness diagnosis and selects a 10-year life insurance policy. The key here is to know that all of your personal information is going to play a role in determining how much you will pay for life insurance – your health, your age, the type of job you have, and the area where you live are all factors.

How Are Whole Life Insurance Premiums Calculated?

With whole life insurance, the company uses all of the same information as term life insurance, but there are a few other factors to consider. For example, with whole life insurance, if there is a cash value component to the policy, this will be factored into the process as well. That is an investment you are making that can help to build up the value that you can tap into during your lifetime. However, these policies tend to cost a bit more to obtain than the average term life insurance policy. Still, it provides long-term benefits, which make it worth considering.

How Can You Get Accurate, Low Cost Life Insurance Quotes?

To get low life insurance quotes, there are a few things to consider. First, buy life insurance at a young age. The younger you are, the less you will pay for life insurance overall. Keep in mind that if you have a diagnosis of an illness, you can still get coverage. In addition to this, be sure to be open and honest about any health matters or any dangerous lifestyle choices you make. It is always important to be honest, or the insurer could deny a claim later.

How to Choose an Affordable Life Insurance Policy

Another key factor in determining the premium of your life insurance policy is as simple as choosing the right terms. For example, the amount of money you aim to have as the death benefit will play a big role in determining the cost of the policy. You may benefit from a policy that is a bit less. When choosing your life insurance policy, you also need to compare several agencies and options. You will find that some policies can be less expensive through some insurance carriers over others for no other real reason. The more information you have about the policies, the better.