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How are life insurance premiums calculated?


Read our guide to find out how life insurance is calculated and what steps you could take to reduce premiums.

Like any type of insurance, the amount you pay for life cover depends on a number of factors.

Understanding what these factors are, and how they interconnect with each other, can help you take steps to reduce your premiums.

Amount of life insurance protection needed

When you take out a life insurance policy, you decide how much cover it is going to provide for your family in the event of your death.

There are various issues to take into account when choosing the amount of cover: do you want the policy simply to pay off your mortgage if you died, so your family could.

Continue living in your home?

Or do you also want other debts, such as credit-card bills, to be covered? What about your own income?

As you would expect, the higher the level of cover you choose, the higher your premiums will be.

Decreasing payouts

The size of your premiums also depends on whether you choose to have a fixed level of cover for the duration of your policy, or if you opt to have the amount of protection decrease year after year.

For example, if the life insurance is designed to cover your mortgage, the balance of your outstanding loan will fall every year as you make repayments. 

That means you won’t need to have a fixed level of life cover, and your premiums will be lower as a result.

Length of cover

If you choose a life insurance policy that covers you until you die – a whole-of-life policy – your premiums are likely to be higher than if you opt for term insurance, ie a policy that only covers you for a fixed period, say 25 years.

Premiums on whole-of-life policies can rise (after a certain period of typically 10 years, when they are fixed), and may be based on any subsequent health problems, so they could end up being quite expensive.

Term insurance is likely to be cheaper, but can still offer you protection while you have an outstanding mortgage, or while your children are still at home or going through university.

Your own health

If you have any existing health problems when you sign up for life insurance, these are likely to push up the cost.

Failing to reveal any medical conditions in your application could result in the policy being rendered null and void, or in the insurer refusing to pay out if you do die.

Lifestyle factors may also push your premiums up: for example if you are a smoker, or if you are seriously overweight; and also if you have a risky occupation, such as an oil rig worker or fireman.

Your age

The younger you are when you sign up for life cover, the cheaper policies will be - other things being equal. 

This is because older people are closer to the end of their lives, thus increasing the risk of the insurer having to pay out during the policy’s term.

As an example a pensioner may have to pay a large premium for a lesser amount of cover against a 25 year old with more cover.

Joint cover

Couples may choose to take out a joint-life policy - these will pay out when the first partner dies. But this option will usually result in higher premiums, because the policy is more likely to be claimed on.

Critical illness insurance

Including cover for serious health problems, such as heart disease or diabetes, will also increase the size of your monthly premiums. 

Adding critical illness cover can be very expensive, especially for people over 60 or those with pre-existing medical conditions.


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Compare life insurance

We compare prices from up to 9 trusted UK insurance providers

Get a quote

Life insurance

Compare life insurance quotes from up to 9 providers

Get a quote