Paisawiki is a Part of Logo
*Please note that the quotes shown will be from our partners

Factors Affecting the Cost of Life Insurance Premium

The life insurance policy is essentially an agreement between the policyholder and the insurance provider wherein the insurance company will pay the sum of money to the nominee or the beneficiary in return of the premium.

Now, the life insurance premium is referred to as the payment that is made to the insurance company against the life insurance plan. In case an individual is unable to pay the life insurance premiums on time the policy will lapse.

Most of the life insurance companies in India provide the flexibility to choose the frequency of the premium payment that varies from monthly, annually, semi-yearly or quarterly. The premiums add up to the sum assured or coverage value of the insurance plan, which you will receive on completing the policy term, or will be paid to the nominee or beneficiary after the demise of the policyholder and this is known as the death benefit. 

In this article, let us unfold life insurance premium costs.

Understanding Life Insurance Premium Costs?

The life insurance premium is the amount of money an individual or business pays to an insurer or the insurance company for the policy. The insurance premium costs may increase at the end of a policy term. However, this may vary from one insurer to the other. Failure to pay the premiums may result in the cancellation of the policy. 

The coverage amount can be used to pay in any of the emergencies such as medical bills, act as a pension at old age and a source of steady income to the beneficiaries in case of the untimely demise of the policyholder. You can also avail additional rider benefit options with paying the extra premium amount.

What are the Types of Insurance Premiums?

There are various types of insurance premiums. The insurance premiums can be classified on the following premise:

  • Premium Paid.
  • Insurance Purchased

Primarily, let us understand in the below grid the types of premium paid

Fixed Premium Flexible-Premium
  • Until policy maturity, the premium remains unchanged and is also known as level premium.
    • It allows the policyholder to make changes as per the policy.
  • The changes may include increasing the number of people covered in an insurance plan or increasing the sum assured and calculating the premiums accordingly.

In case you do not know, the premiums also largely depend upon the type of policy that you purchase. Here, in the grid below we have discussed three types of insurance plans to have a better understanding:

Life Insurance Policy Premiums Health Insurance Policy Premiums Car Insurance Policy Premiums
    • It is calculated based on the policy holder's age, occupation, income, health, assets owned, debts to be paid and so forth. 
  • It also depends on the nature of the plan, whether it offers saving benefits as an endowment policy or a term life plan.
  • It is calculated based on the age factor. The older one is, the greater are the chances of falling sick, therefore, the higher premium. 
  • Other considerable factors are pre-existing health conditions, income, family size and so forth. 
  • It is calculated based on the type of car insurance plan chosen.
  • The third-party insurance, riders added, car's model, daily commute route, age of the driver, occupation, gender and other factors affect the premium value.

Moving further let us understand some of the life insurance plans and the premium costs that are charged against it one by one.

Term Life Insurance Premiums

It does not build any cash value; the premium payment made to the insurance company only covers the cost of insurance for the life insurance policy.  The premiums for term life insurance are the lowest in comparison to all types of insurance policies because of this reason.  If an excessive amount of premium has been paid for a term life insurance policy, the excess will be held in an account for future premium payments. The premium value may increase or decrease with an increase or decrease in the number of policyholders and provides death benefits with additional health and medical benefit riders.

Whole Life Insurance Premiums

The premiums against a whole life insurance policy cover the cost of insurance just like the term insurance, but the premium payments are higher for the same death benefit coverage.  The reason the premium payments are higher is that it guaranteed builds cash value at a certain rate when all premium payments have been made promptly.  Upon maturity, the sum assured is paid to the policyholder with added certain interest rates for the term period of the policy, or sudden demise of the policyholder the sum assured is given to the beneficiaries, nominee or survivor.

Universal and Variable Universal Life Insurance Premiums

The premium payments here are flexible, as long as the cost of insurance is covered by the premium payment or by the existing cash value within the policy.  These policies benefit clients the most when the premium payments are made well more than the cost of insurance value during the early years of the policy serves as a large cash value reserve, and grows at either a guaranteed rate as in the case of universal life insurance or at the rate of market returns as in a variable universal life insurance policy.

The below grid shows the comparison of the different insurance policy premiums on different parameters: 

Type of Life Insurance Premium Cost Premium Payment Type No. of Policy Holders Nature (Rigid/ Fluid/ Flexible) Factors Affecting Premium Value Failure to Making Prompt Payments
Term Life Insurance Premium The flexible, premium amount may decrease or increase at the discretion of the policyholder, or the number of policyholders in one policy. May increase or decrease depending on several members in a group buying a policy. Flexible, whether in increasing or decreasing premium payments, members or additional benefit, etc. The premium value is chosen at the discretion of the policyholder, depending on the number of members the policy will cover and to what benefits. The age, health and medical status of each member. The policy will be terminated on the due date.
Whole Life Insurance Premium Can opt for monthly, quarterly, or annual premium payment. A single person or joint survivor benefit policy. A fixed amount of premium payment is made, which is decided at the very start of a policy and cannot be altered. The amount may increase on again purchasing a similar policy. Several factors like age, health income, assets, debts, etc. of the applicant. The policy may be given a grace period, on failing to pay the premium during the same will terminate the policy without any benefit provided.
Universal and Variable Universal Life Insurance Premium An excessive or lumpsum premium might be paid in the early stages of initiating a policy to generate a cash reserve. No new member can be added Paying larger amounts of premium earlier on enable us to stop paying premiums earlier than the maturity period. This is to avoid gaining pressure on policyholders in later years to pay a premium on time. Same as the above factors. Since larger amounts of premium are paid in the start, a gap in paying a premium on time can be adjusted with cash reserved. 

Factors that Affect the Benefits of Life Insurance Premium Costs?

It is essential to know the reasons that affect the premium costs to pay suitable premiums for and avail most benefits from the insurance companies. Listed below are some of the factors that affect the premium costs of life insurance policies:

  • Age – It is a prominent factor; if you're younger, the possibility of a life-threatening disease or death at a young age is very unlikely.
  • Gender – With the studies and statistical uncovering, women are believed to live 5 years more than men; which does affect the life insurance premium value.

  • Medical History – The medical history of critical illness such as cancer, heart diseases, or any other, will increase the individual's premium by a larger margin than otherwise. The record of health history is requested to ensure that you don't have any chronic diseases or potential health issues. Being obese can lead to several health problems in the future and also increases your premium cost rates.

  • Drinking and Smoking Habits: If an individual is a smoker or drinker, or both the life insurance premium rates will be on a higher side.
  • Duration of the Policy: The policy that is chosen and benefits entailed also affect the premium you pay. The longer the tenure of the policy, the larger the amount of the benefit. Short term policies tend to be more expensive than in the long term.

  • Profession: It is another factor that plays an important role in the premium you end up paying, any dangerous profession increases the premium cost.

  • Lifestyle: If you're a speed car enthusiast, mountain climber or involved in high-risk activities and adventures, the life insurance premium cost will substantially be more comparatively.

These are some of the most common factors considered by the insurance companies in India. The life insurance policy will always vary from insurer to the other and the life insurance premium cost will also differ on the premise of the different needs and requirements.

How to Pay the Life Insurance Premiums?

On the premise of the frequency of the payments, the mode is decided to pay the life insurance premiums. Let us take a brief understanding of the different modes of paying life insurance premiums below:

Lumpsum Premium Monthly Premiums Quarterly Premiums Semi-annual Premiums Annual Premiums
The total amount is paid at once before the start of insurance coverage. An easy and affordable, but the policy cost increases. It is paid quarterly and is lower when compared to monthly premiums. It is paid twice a year and is pocket- friendly than monthly premiums. It is slightly heavy on the pocket as it is a hefty amount and is paid once a year but the ultimate cost of the premium is low when compared to other modes.

Before You Pay the Life Insurance Premium Costs

Now, take a glance at the following pointers that you should be aware of before making the life insurance premium payment:

  • The premiums are to cover liabilities associated with the policy.

  • The premiums are to give rise to the higher returns and counteract some of the costs of offering the insurance coverage, helping insurers to keep competitive premium costs.

  • Insurers also provide liquidity based on market returns and other factors enabling policyholders to cash the accumulated premium for a steady monetary source when needed most.

  • Learn if the returns on premium are based on market returns or not, this may affect the payout amount.


  • Q: Can the premium cost payment value be reduced?

    Ans: Plans like term insurance allow premium costs to vary; however, most plans premiums are fixed at the start of a policy. You can cross-compare different plans based on the return rates given by various insurance companies, as their cost of premiums will also vary accordingly.
  • Q: What do insurance companies do with the premium amount?

    Ans: Insurance companies take premium against assured sums, and the premium taken is used for providing financial benefits to policyholders, just like payouts to beneficiaries of the deceased or sudden demise of the insured or helps pay medical bills and expenses. The premiums also support insurance companies in paying their staff.
  • Q: Are premiums tax-free?

    Ans: Certain policies exempt your income from the tax. That is, if you have an insurance policy then you may not have to pay tax. Also, the sum assured that will be provided at the maturity of a policy provided to the beneficiary or the nominee after a deceased policyholder regardless of the sum amount; it is exempt from tax too.
  • Q: Can premiums be paid online?

    Ans: Yes, most insurance companies have easy, user-friendly online paying portal or net banking facilities, so customers can pay their due premiums online without any hassle.
  • Q: Can cash be withdrawn from a policy?

    Ans: Insurance companies do not store cash, unlike banks; they generate cash value from given premiums to payout on the maturity of policy with added interest if opted for. However, certain plans and policies like pension plans may pay out sums before maturity, depending on the nature of plans chosen by a policyholder and regulations of the concerned insurance company.
  • Q: Can insurance policies be cancelled by policyholders?

    Ans: Yes, they can, but before they start a plan, they should learn about the cancellation policies from the insurance company. Some policies will not return any cash value, which they may have paid as premiums.
  • Q: Can an insurer cancel a life insurance plan/ policy?

    Ans: Yes, if the policyholder fails to pay the due premium on time according to the premium guidelines written under policies, insurers can cancel the policy altogether. You may or may not receive any returns, and to avail the policy benefits, you will have to buy a fresh policy. Kindly check with your insurer regarding due premium payment whenever you choose a policy plan.
  • Q: Can there be a break in paying premiums?

    Ans: Premiums are usually paid to generate cash value. You can consult your insurer regarding premium payment terms, but against certain policies, if there are sufficient cash values generated, then you can skip paying consecutive premiums and resume later.
You May Also Want to Know About
Best Term Insurance Plans in India
Best Term Insurance Plans in India 2021 With the growing uncertainties of life, it is very import...
Life Insurance Benefits
Life Insurance Benefits What is life insurance? Life insurance is a financial contract between t...
Types of Death Covered and Not Covered by Term Insurance
Types of Death Covered and Not Covered by Term Insurance With so many different kinds of term ins...
Types of Life Insurance
Types of Life Insurance Life insurance is a legal contract between the policyholder and the insur...
Term Insurance Benefits
Term Insurance Benefits A person always wants to secure the future of the family in any circumsta...