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What are the Factors that Influence Your Term Insurance Premium?

By PolicyBazaar
  | Published: 09 February 2021 | Last Updated On: 11 February 2021
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A term insurance plan offers financial protection to both you and your family in the event of a contingency. Insurance providers take into consideration several factors before arriving at a suitable premium for each insurer. While some of these factors might be in your control, the others aren’t. However, if you make prudent choices keeping each of these factors in mind, you can certainly get your money’s worth.

In this article, we will try to demystify the ins and outs of term insurance premium so that you are better informed about how the insurance premium rates are ascertained whilst comparing different term insurance policies available in the market.

The following factors can either increase or decrease the term insurance premium amount of your policy:

  • Age: Buying a term insurance policy early on in life has many advantages, the primary being the low premium rates one gets to enjoy. This is due to the fact that as one tends to age, the chances of making a claim due to death also tends to increase. Keeping this in mind, the insurer increases the term insurance premium rates for older folks. For instance, a 30-year-old individual pays an annual premium of AED 10,000 for a term insurance plan of AED 1 million for the next 30 years. A 35-year old however has to pay AED 14,000 which is approximately 36 percent more, for the same tenure. So, it is better to buy a term insurance cover as soon as you are capable of taking financial responsibility.
  • Gender: Women tend to be charged a slightly lower premium rate compared to men as historically, women are believed to have a higher life expectancy. With a higher chance of surviving the policy tenure, most insurance companies offer lower premiums to women. For example, a 30-year-old female will be eligible for an annual term insurance premium rate of AED 9,500 for a similar policy that would be available at AED 10,000 annual premium rate to a man.
  • The sum assured and the policy term: The longer is the period of the policy, the higher are the chances of claims, thus making you pay a higher term insurance premium. Life insurance companies are offering life covers up to a period of 85 years these days. However, it is best to use your discretion and pick a term cover that terminates once you retire as well as choose a sum assured that is adequate for covering the needs of your family in the event of an untimely death. 
  • Factors like smoking and drinking: Smoking and drinking are big red flags for the insurance providers. Statistics indicate that a smoker has to pay a staggering 51 percent more as a premium as opposed to a nonsmoker. Just like that, drinking too much can make your insurer charge you more in premiums. These habits cost you more than money, they cost you your life and it is not possible to hide these from your insurer as they are bound to find out sooner or later, causing your policy cover to lapse.
  • Health history: Another vital aspect of buying a term insurance plan is making the correct health disclosures in order to prevent yourself from losing claims. If you have a personal medical history of diabetes or other such diseases, they might not necessarily lead to an increase in the premium rate. If however, you have a heart related medical ailment or a history of  heart surgery, then it might lead to the rejection of your term policy. Similarly, the details of your height or weight inform the insurer whether you are obese or not, impacting your term insurance premium rate.
    In some cases, the insurer may ask the applicants to go through a medical check-up for those seeking a sum assured. This might also be done if the insurer wants to verify the health status of the policy holder.
  • Your family’s health history: Even if the insured has no sign of a current medical ailment, his or her family’s history of medical conditions, especially any hereditary diseases can factor in deciding your term insurance premium, thereby increasing the cost of your cover.
  • Occupation of the policy holder: Some jobs come with their specific set of occupational hazards like working in a mine or the job of a fire fighter. Such jobs have an increased chance of death of the policy holder. Insurers charge a higher term insurance premium in such cases. It is extremely important to make proper disclosures regarding your occupation in your policy approval form. This is necessary since the insurers generally set a limit on the sum insured in multiples of your current income.
  • Your hobbies: If the insured has a knack for hobbies like sky diving or car racing, or pretty much any such activity that he or she regularly partakes in, can cost him or her a higher term insurance premium. These activities are defined as high-risk activities, and the list of such activities varies from one insurer to another. If you are into such activities, it might be best to shop around for the most feasible quotes.
  • Payment method and schedule: Monthly premium payments are costlier, usually about 5 percent more, as opposed to paying a lump sum amount once a year. Furthermore, the term insurance premium will be even higher if you have opted for limited premium options. Unless your income stream provides otherwise, it is better to make regular payments of your premium. In some cases, it is even possible to save around 5 percent by buying term insurance plans directly from the life insurance provider as well as buying it online. This is because by doing so the insurers are able to save on the brokerage as well as administration charges shared with the insured in the form of lower term insurance premium.
  • Added riders on the policy: In case the insured opts for an additional rider like the accidental death cover or a critical illness cover, the insured will have to pay an additional term insurance premium. For instance, if you were to add a personal accident cover benefits worth AED 200,000 to your term insurance plan, it would significantly shoot up your insurance premium. Therefore, it is important to note whether there is an overlap or if one actually needs such riders before choosing them alongside your policy.

In a Nutshell

Understanding the factors that impact the term insurance premiums of your cover and making the required lifestyle changes like quitting smoking or staying fit as well as by making full disclosures about your medical history, you can get the right plan for the right cost. Making prudent choices when it comes to insurance can help you get the most out of your policy.