Life insurance premiums

The amount of life insurance cover a prospective insurance policy holder wants determines the amount of money he would pay initially. This money is paid into a large pool of money which in time of claims, the death benefits are paid from this pool of money.

Definition
The Life insurance premium is the amount of money a life insurance policy holder agrees to pay on a consistent basis to the insurer; this depends on a lot of factors taken into consideration to determine how much the policy holder would be liable to pay on a determined basis. Most times it could be monthly, quarterly or annually. This premium varies among different insurance companies and it is well advisable to consult different insurance companies, get their quotes and go for the lowest which also gives the best policy. But the lower the amount you pay, the lower the extent of the liability of the insurer or in simple meaning the smaller the amount of cover.

After the prospective customer has filled out an application with the insurance company, he would be required to provide answers to certain medical and health related questions. This is to determine how insurable he is and this concept of insurability came out in order to determine how much of a risk the life insured is to the insurer. Your answers determine how much premium you are to pay.

Factors
The following factors are important to determine how much you will pay.

Smoking habits: A person that smokes presents much risk to the insurer and because of this; the Life term insurance premium would be more. A non-smoker lives more healthy life than a smoker.

Age: The older you get, the higher the risk to the insurer and the more the Life term insurance premium. Older people get sick often times than young people and are more prone to terminal or critical illness. In clear terms, the life expectancy reduces with age hence, the higher risk presented with age.

Gender: The insurance premium of a female would be lower than that of a male; it is generally and statistically believed that women have a higher life expectancy than men and as such present a reduced level of risk. Also is the fact that women are less likely to be involved in car accidents than men and lastly that a woman would most likely get medical attention and drugs than men.

Occupation: Some occupations have more hazards associated with them and the risks presented would be higher. E.g. Divers, law enforcement officers, etc. Such people would pay a higher life term insurance premium.

Medical history: If you have history of a particular illness e.g. cancer or AIDS
Your premium would be higher because you are presenting more risk to the pool of premiums paid by everyone in the life term insurance group therefore you will pay more in premium than others.

Cost to insurer of providing the policy: This means the cost of administering the policy by the insurer, this would be taken into consideration and also the profit the insurer seeks to make on the policy.

Amount of cover applied for: This has a great influence on the premium charged by the insurer. The higher the death benefit to be paid, the higher the premium

All these factors are considered before the premium to be paid is determined. It should be borne in mind that the insurer in addition to paying up its cost of providing the policy would also make some profits, and as such a method must be employed to determine the cost of providing the policy.

Most Insurance companies make use of mortality tables calculated by actuarial science professionals. These mortality tables are tables of statistics and probability used to derive expected annual mortality rates. Life expectancy estimates are then derived from this. The commonly introduced variables in a mortality table are; use of tobacco, age and gender.These altogether would then be used to determine the probability of a life to be insured living for the term of the policy.

For a term life insurance premium, the initial amount paid

is relatively cheap but with each renewal, the amount increases.