9 Factors that Determine the Premium Rate of a Term Insurance Policy

9 Factors that Determine the Premium Rate of a Term Insurance Policy

Life Insurance

Life is precious and every individual makes efforts to protect it from different situations. The best way to secure your family against any type of eventualities is to have a term insurance policy.

The cost of term insurance premium is determined based on the coverage on require. Moreover, the factors which are taken into consideration while determining the premium rate of the term insurance policy.

Read further to know various factors that are considered while determining the premium rate of the term plan.

Factors Affecting the Premium Rate Towards Term Insurance Policy

1. Age

Age is the primary and the most important factor in determining the premium rate of the policy. The older you will purchase a term life insurance plan, the higher the premium rate of the policy will be.

This is because with the growing age you pose a higher risk to the insurance company, as the chances of having health-related problem increases. As the premium amount of the term plan tends to increase with age, it is always advised to purchase a term insurance plan while being young.

2. Gender

As per the studies, it has shown that women on average lived 5 years longer than men. Thus, the insurance company feels that providing insurance coverage to women is less risky as compared to providing insurance coverage to men. This results in higher premium charges for men.

3. Occupation

The occupation of an individual also plays an important part in determining the premium rate pf the policy. Some occupations like mining, working in the gas industry, off-shore oil, defense are considered high risk by the insurers. Thus, people working in a safer environment like desk jobs, teachers, shop workers pay lower premium rates as compared to others.

4. Lifestyles Choices

Many insurance companies offer higher premium rates for individual who loves to takes the risk for the excitement of it. Like car racing, hiking,  or other high-risk activities. Thereby increasing the risk factor for the insurer which increases the premium rate of the policy.

5. Geographical Location

The place where you reside also plays an important role in determining how much premium amount you will need to pay for the term insurance plan. If you live in a place that is more prone to disasters like a war zone or faces any natural disaster like tsunami, earthquake, flood, etc. then the insurance company might reject the application or you will need to pay a higher premium amount for the same policy.

6. Overweight

The insurance company also takes into consideration the weight of the policy buyer while determining the premium of the term plan. if you are overweight then the risk of getting affected with a weight-related health issue like heart problems, breathing issues, diabetes also increases. As an overweight individual posse, more risk to the insurer the premium amount of the term policy increases automatically.

7. Medical History

While determining the premium rate of a term insurance policy, the insurance company also take into consideration your past medical history.

For example, in the past, if you suffered from any critical illnesses or are currently suffering from any diseases will increase the premium amount of the policy that you will need to pay. Life-threatening disease like type one diabetes will increase the premium of term plan that is required to be paid by you.

Moreover, most of the insurance companies reject the application of the policy buyer if he/she has suffered from cancer previously. The term insurance plans are only offered to the insurance buyers if they have recovered from cancer for a period of at least 5 years without any signs of relapse of the disease.

Thus while purchasing a term plan it is very important to disclose every information related to health history to the insurer.

8. Family Medical History

The medical history of the family is also taken into consideration while defining the premium amount of the term plan. If any of your immediate family members like mother, father, sister, brother have been or had been contacted with critical illnesses at an early stage of life, their medical condition will affect the premium rate of the term insurance policy you purchase. This is because is possible that they might get affected by the same illness in the later stage of life.

9. Lifestyle Habits

Every individual has different lifestyle habits. Some of the lifestyle habits which results in the increase of term life insurance premium are:

  • Smoking or Tobacco Use: It is a well-known fact that individuals who do not consume tobacco live a healthier and longer life as compared to the people who are addicted to smoking and chewing tobacco. This is because smoking increases the risk of many life-threatening diseases such as throat cancer, lung cancer, breathing issues, etc. therefore they are needed to pay higher premiums. Generally, in any form, if you have consumed tobacco products in the last 1 year then you’ll be considered a smoker. Insurers generally don’t differentiate the policy buyers based on how many cigarettes they smoke – if you smoke 20 cigarettes-a-day or even one per day, you’ll be considered a smoker.
  • Alcohol Consumption: Getting addicted to alcohol also increases the risk of heart-related disease and other life-threatening diseases like liver damage, etc. This in result affects the overall life span of an individual. Thus, the premium of the policy increases automatically. This is seen as a key reason by the insurance company for charging higher premiums.

Wrapping it Up!

These are some of the major factors that are taken into account by the insurance company while determining the premium rate of the policy. Apart from these, there are other factors like no of dependents, financial status, the period of coverage, etc. are also considered to define the premium amount of the term plan.

Also, you can take the help of the term insurance premium calculator to estimate the amount of premium you will need to pay for the term insurance policy.

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