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How are life insurance premiums calculated?

The amount you pay for life insurance depends on a wide range of factors, from your age and job to your health and lifestyle. And if you find yourself with higher insurance costs, there are a number of lifestyle changes you can make to try and reduce this.

A couple with forms on a table as they try to work out their life insurance costs


What is a life insurance premium?

Whatever type of life insurance you sign up for, you normally have to pay a monthly fee to cover the cost. This fee is known as a life insurance premium.

Your agreement with your insurer means that, provided you continue to make these payments, your life cover remains in place. It should pay out on your death when your family needs to make a claim.

However, if you miss a payment, your cover could lapse. In such circumstances, you could be without life insurance, at least temporarily. And you might need to take out a new – and possibly more expensive – policy to get your cover back in place. 


How are life insurance premiums calculated?

Insurers use a wide range of factors when setting life insurance premiums for each customer. These factors include the type of policy being taken out, the amount of life insurance cover you need, as well as your personal circumstances.

This all builds up a picture of you and the risk of you dying within the timeframe of the policy. The greater the risk, the higher your insurance costs are likely to be.

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What factors affect how much you pay in life insurance premiums?

The factors that dictate how much you pay for life insurance can be divided into two categories:

  • Those that are specific to the policy you want take out
  • Those that are linked to your own personal circumstances


How long you want the policy last plays an important role in setting your premiums. If you opt for level term life insurance, the policy only covers you for a pre-agreed period. This is usually 20 or 25 years.

With term insurance, the longer the term, the higher your premiums tend to be. This is because there’s more chance of the insurer having to make a payout.

Alternatively, whole life insurance is designed to remain in force until your death. Because these policies are intended to definitely pay out at some point in the future, the earlier they are taken out, the lower premiums tend to be. This is because the insurer is usually able to collect more money in premiums before eventually paying out.

Extent of cover

The size of any potential payout plays a major role in setting your premiums. The more cover you want, the more it costs you every month. There’s typically a direct relationship between how much cover your policy provides and the premium. So, a policy for £200,000 might be twice as expensive as one which insures you for £100,000.

Level term or decreasing term

Level term insurance keeps the amount of cover the same throughout the policy. Decreasing term policies are also called mortgage life insurance because the extent of cover is designed to decrease over time as you pay off your mortgage.

For two policies with the same starting level of cover, decreasing term life insurance tends to have the cheaper premiums, other things being equal.

Joint cover

If you get a life insurance policy that also covers your spouse or civil partner, premiums are likely to be higher than on a single policy. The way a joint life insurance policy is set up might also affect the size of your premiums.

Such policies sometimes pay out on the first death only, while others will only pay out if both spouses die within the term of the cover. The latter type of insurance might have lower premiums since there’s a lower chance of both partners dying. Joint policies are usually cheaper than buying two separate individual policies.

Your age

How old you are is important when it comes to calculating life insurance premiums. In general, the younger you are, the lower your premiums are likely to be on any given life policy.

This is especially true when it comes to term life insurance that runs for a fixed period of, say, 25 years. This is because younger policyholders are less likely on average to die within policy term.

Likewise, with whole of life policies, the younger you are when you take one out, the lower premiums tend to be. This is because the insurer is likely to collect more payments before having to settle a claim.

Your occupation

If you’re employed in an occupation that an insurer classes as high-risk, you can expect to face higher premiums. So for example, office workers might pay less for life insurance than firefighters or HGV drivers, other things being equal.

Your lifestyle

When you apply for a life insurance policy, you’re asked questions about your lifestyle covering factors. These include how much exercise you do, whether you smoke and how much alcohol – if any – you drink in a typical week.

Your marital status

Some research suggests that married people might have longer life expectancy. This could be due to the emotional support they get from their spouses, as well as because they tend to eat more healthily, according to some studies.

Your height and weight

Insurers tend to see overweight or obese customers as having a higher risk of developing illnesses such as diabetes or heart disease.

Your health

Many life insurance applications ask you questions about your current state of health as well as any medical problems you might have had in the past. A history of serious illness could increase your premiums. It’s vital to fully disclose these details as well as any medication you’re taking. Failing to do so could result in your policy being cancelled or a claim being turned down.

Family history of illness

If certain hereditary diseases run in your family, this could affect how much you pay for life insurance. These can include diabetes, stroke and certain types of cancer. However, insurers consider how many relatives have been affected when deciding whether you should pay higher premiums.


How to cut the cost of your life insurance

By understanding the factors that influence life insurance costs, you might be able to look at reducing the cost. Clearly, you might have little control over factors such as your age, occupation and state of health, for example. But there are some steps you can take in order to pay less.

  • Don’t delay. Usually, the sooner you take out a life insurance policy, the less it costs – other things being equal.
  • Consider decreasing term insurance. If you want a life policy to ensure your family can stay in their home after your death, you could opt for decreasing life insurance. The amount of cover falls every year as you pay off your mortgage debt. This means premiums are often lower than on level term insurance, where the cover is maintained at the same level throughout the policy.
  • Make lifestyle changes. Getting fit, stopping smoking and reducing alcohol intake are all good ideas in and of themselves. And the fact that taking such steps could lead to lower life insurance premiums is an added bonus.
  • Don’t over insure yourself. Our life insurance calculator could help you work out the right level over cover given your family status as well as your mortgage and any other debts.
  • Think about taking out a joint life insurance policy. This kind of policy insures a married couple or civil partners for a pre-agreed period of time. Some joint policies only pay out when the first partner dies and others if both partners die during the term. The latter type might be suitable if your main concern is that your children won’t be able to cope financially without both parents. A joint policy is usually cheaper than two separate individual policies.