A life insurance premium is the payment you make as your portion of the cost of an insurance policy. You can usually pay your life insurance premium monthly, quarterly, semi-annually, or annually. If you do not pay your premium, your life insurance policy will be canceled, and your beneficiary will not receive the death benefit.

When you build a family with someone you love, you hope that your family will stay together, be happy and healthy, and nothing will get in the way of your future growth. But you also know there is no guarantee of what the future will bring. While you can hope for a future without any setbacks, accidents, mishaps, health issues, or death, it is likely that there will be bumps in the road as you embark on life’s journey. Some or all of your family members may need help along the way. And that help may be needed because of the death of the person or people who support the family financially.

While you may think that you can live forever, the reality is that death can occur without any warning. Protecting the family that you love in case of the death of a family member is what life insurance is for. While you can’t predict the future, you can protect our family in the case of death. You can support your family even after you’re gone to reduce the hardship during a time of grieving and loss.

How does life insurance work?

Life insurance basics are pretty simple and straightforward. You buy a life insurance policy for a fee, and then when you die, the insurance pays out a predetermined amount to your family.

If you are the person or one of the people who supports your family financially, then what will happen to them if your salary is suddenly gone? If you aren’t the only person whose income supports your family, what happens to your spouse or partner if your income stops? These are the questions you need to ask yourself when you consider buying a life insurance policy.

When you get a life insurance policy, you are protecting your spouse, children, and family from what would happen if you and your financial support are gone due to your death.

How do life insurance premiums work?

Life insurance works in a similar fashion to most insurances. You pay a fee to receive an insurance benefit. In the case of life insurance, the benefit is that your family will receive a predetermined amount of money when you die. The fee that you pay for your life insurance policy is called a premium.

As long as your life insurance premiums are up-to-date and haven’t lapsed, your beneficiaries will receive the full amount of your life insurance payout. The insurer is the company that provides life insurance. The insuree is you, the person who pays the premiums.

What factors into life insurance premiums?

Determining the premiums on life insurance is more complicated than many other types of insurance premiums. This is because there are so many factors that life insurance companies use to make that determination. With health insurance, you receive the benefits immediately. Health insurers tell you what they will cover, and these amounts are deducted from your medical bills throughout the year.

However, with life insurance, the payout may not be made for many years. So the insurance companies have to determine your chances of needing the insurance payout and when it will need to be paid. The amount of your life insurance premium basically depends on two things: who you are and what you want.

Who you are

Many life insurance companies use a process called underwriting to set your life insurance premium. This means they evaluate factors like your age, health, and lifestyle (as provided by you in an application) to classify you at a certain level of risk.

Criteria life insurance companies consider to set your premium include:

Age. The younger you are, the less likely it is that you will die. Older people have had more life experience, and that experience includes illnesses, accidents, and bad luck. As people age, they may get diseases or other health issues that are more common in the elderly. There is life insurance for senior citizens.

Sex. Women tend to live longer than men for many reasons. Some of those reasons include the type of work women do, that men take more risks in their lives, and the traditional roles of men and women in society. Men usually have higher life insurance premiums than women. (These are general rules and may differ depending on your work and lifestyle.)

Tobacco use. Cigarette, cigar, pipe, and smokeless tobacco use causes illnesses like lung cancer over a lifetime of use. That means that people who smoke are at a higher risk of death than those who don’t smoke. Therefore, smokers have higher premiums than non-smokers.

Height and weight. Height and weight are two factors of how insurers rate life expectancy. If your BMI (body mass index) indicates that you’re overweight, then your weight impacts your life expectancy. If people are overweight, they are at a higher risk of death, which can increase your insurance premium.

Family history. Many diseases including diabetes and mental illness are genetic. If your family has a history of illnesses that may be passed down to you, you are at a higher risk of death. This can include diseases that can be caused by lifestyle, like lung cancer, heart disease, and diabetes.

Previous illness. If you have already had or have illnesses like heart disease, diabetes, stroke, or cancer, you are at a higher risk of death from reoccurrence or damage due to those diseases. If you have had an organ transplant, like a kidney transplant, you are also at a higher risk.

Cholesterol. Chemical changes in your blood like high cholesterol are indicators that something is wrong with your overall health.

Blood pressure levels. Like cholesterol, high blood pressure is an indicator of health issues and puts you at a higher risk of death.

Other factors that can increase your premium include:

• Poor driving record: Puts you in more danger from vehicular accidents.
• Hazardous occupation or activities: Increases your risk from work or activity-related accidents.
• Military service: Puts you in more dangerous situations and in the presence of dangerous weapons.
• Foreign travel or residency: If you get sick or have an accident while traveling, you may not have access to the best quality of medical care, meaning your risk is higher than in the U.S.
• Felony criminal activity: Criminal activity often involves weapons, interaction with police, and higher physical risks than the average person.

One or all of these risk factors by themselves or in combination increase your chances of death.

Once your life insurance premium is determined, the life insurance company cannot raise it based on your declining health. However, if your health improves or if you stop smoking, you can sometimes get reevaluated to reduce your premium. Some life insurance plans may vary your premium based on your aging.

What you want

There are a variety of life insurance policies to choose from and each type may charge a different premium. Picking the right life insurance policy means making sure you can afford the premium, so it is important to understand the differences.

Amount and length of policy. The higher you want your life insurance policy to be worth, the more your premium will be. Term policies usually offer the lowest premium for the highest death benefit. If you choose a term policy, the longer the term you choose, the lower your premium will be.

Type of policy. Generally, a term life insurance premium is less expensive than permanent life insurance at the beginning. But with some term life insurance policies, your premium will increase as you age. Permanent life insurance premiums usually stay the same through the entire policy. Premiums for group life insurance (such as plans offered by your employer) have a set premium that everyone at the company pays, regardless of individual classification. The premium is sometimes paid by your employer. Some people who get group life insurance from their employer also purchase an individual life insurance policy for additional coverage.

Finding the right insurance policy

Finding the right insurance policy for you and your family is an important way to protect your loved ones in the case of your death. The right insurance policy may take some effort to find. Let us help you narrow down the best type of life insurance for you and your family. To find out more answers to life insurance FAQs, visit our guide.