What Is a Life Insurance Premium?

Premiums are payments you make to your life insurance company.

How much your life insurance policy is worth is called the death benefit. This is the payout your beneficiaries receive from the insurer if you pass away while the policy is in effect.

When considering the types of life insurance and the costs, term life insurance is almost always cheaper than permanent life insurance.

For example, premiums for whole life coverage — a type of permanent life insurance — cost about five to 15 times more than premiums for term life coverage.

Term life insurance lasts a specified period, such as 10, 20 or 30 years. You are required to pay premiums for the duration of that period.

On the other hand, permanent life insurance never expires, so long as premiums are paid. This means you’re likely to pay premiums for the rest of your life.

Life insurance premiums can be paid monthly, quarterly or yearly.

Monthly premiums are common, but life insurance companies often offer discounts to customers who pay annually. This can save you between 2 percent and 8 percent each year on your premium costs.

Your premiums are set by the insurer. Many factors contribute to the price you pay.

As you may expect, your health plays a crucial role in calculating premiums.

Younger, healthier people are less likely to die in the near future and are therefore less risky to insure. That’s why companies charge some people lower premiums than others.

Life insurance companies use a process called underwriting to gather information on you and calculate your cost.

Information like your personal and family health history, your lifestyle and medical exam results are all considered when establishing premiums.

Risk factors like smoking or chronic health conditions can result in higher premiums.

According to Forbes, insurers can also use third-party sources to learn about your prescription history, driving record and previous insurance applications.

The cost of premiums is also influenced by specific aspects of the policy itself.

For example, policies with large death benefit payouts are associated with higher premiums. A policy worth $500,000 will cost more per month and per year than a policy worth $100,000.

For term life insurance, longer terms also come with higher premiums. A 30-year term, for instance, will cost more than a 10-year term.

Once a policy is signed, your premiums usually remain stable. However, certain types of policies, such as renewable term life insurance, may be associated with premiums that change over time.