How life insurance premiums are calculated

Find out how companies use risk factors such as your age, health, occupation and hobbies to calculate the cost of life insurance.

Amy Smith
Amy Smith
Updated 19 May 2020  | 2 min read

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Key points

  • A premium is the amount you’ll have to pay, every month or year, for life insurance
  • The cost of your premium is affected by various personal factors, like age and health
  • There are ways to keep the cost of your cover affordable, but that usually means compromising on your cover

What is a life insurance premium?

An insurance premium is the amount of money you pay the insurer for insurance cover. The cost of your insurance depends on the type of policy you want and your risk factor – in other words, how likely you are to make a claim.

Insurers consider a range of factors to determine how likely you are to make a claim, and that’s what impacts the cost of your premium. It’s why you’re asked a lot of questions when you apply for a policy.

Factors that affect your life insurance premiums

Insurers will generally consider the following:

Health and age

The older you are when you apply for life insurance, the more your premiums will cost as you’ll be seen as a higher risk to insurers.

Because premiums usually increase with age, getting life insurance as soon as possible could be worth considering. Especially if you have a young family or dependants. There are, however, a variety of options available for older people looking to arrange life insurance.

Having a life-threatening medical condition or being more likely to have one – for example, due to excessive drinking or smoking – can increase the cost of your premiums too, which is why insurers take your medical history into account. You can get life insurance if you have pre-existing medical conditions though.

Type of cover

There are two main types of cover: whole of life insurance pays out whenever you die, whereas term insurance will only pay out if you die during the term of the policy.

This means whole of life premiums will generally cost more, because the insurer will inevitably have to pay out.

Amount of cover

The larger the pay-out, the more expensive your premiums will be.

If you have many dependants and/or several outstanding debts, and you want them all looked after by your insurance, you’ll need more cover than someone who has paid off their mortgage, for example.

Personal details

Insurers ask about things like your driving history and job. This helps them work out whether your occupation is particularly risky or if you’re a safe driver.

For example, a pilot will probably have more expensive premiums than an office worker.

Optional extras

Most insurers will offer optional extras that you can add to your life insurance. A good example is critical illness insurance. Sometimes it’s integrated, but you usually add it on. But as with all extras, you’ll pay more if you want to cover for diagnoses of serious illnesses too.

Ways to keep the costs down

The higher the risk of your insurer needing to pay out, the higher your premium. Even so, there are some things you can do to get a cheaper premium:

  • Consider a joint policy - Some insurers can cover you and your partner under a joint policy, which might include a discount
  • Reduce your cover - You could choose a policy with a pay-out that decreases over time, in line with your outstanding debts, which can mean cheaper premiums
  • Reduce your risk - Change your habits to improve your health, such as stopping smoking and increasing the amount of exercise you do
  • Sometimes improving your credit score helps – Insurers like to know that you’re reliable when it comes to making payments, so you might get a cheaper premium