An insurance premium equates to the money that is paid by any person or company/business for availing of an insurance policy. The insurance premium amount is influenced by multiple factors and varies from one payee to another.

What is Insurance Premium?

The insurance company stipulates that an individual or business periodically pay them a specific amount of money as premium for the availing and maintenance of their insurance policy and coverage. Insurance companies consider many factors while determining the premiums, particularly in case of life insurance. These include the chances of claims being made by the policyholder, medical conditions, smoking and other lifestyle habits, area of residence, nature of employment and so on.

There are actuaries tapped by insurers for working out the chances of claims being made by the insured individual for critical ailments or life-threatening diseases like cancer/heart attacks across multiple age groups. The higher the risks linked to the individual, the higher will be the premium for life insurance. Premiums can be paid through monthly, half-yearly or even annual installments. Customers can also pay the entire amount as a one-time payment for the whole policy term prior to the commencement of coverage in some cases.

The insurance premium is what insurance companies make use of when it comes to ensuring coverage for all liabilities linked to the policy. The premium may also be invested by the insurance company in securities for earning returns and covering some of the costs tied to the coverage.

How is the Insurance Premium calculated?

While you can always look for a good insurance premium calculator to work out the premiums, the calculation procedure also depends on several factors as listed below:

  • Age
  • Area of residence
  • Nature of employment
  • Medical ailments and history
  • Smoking and other lifestyle habits
  • Likelihood of claims being made by the person insured
  • Income
  • Height and Weight
  • Marital status and dependents
  • Gender
  • Hobbies with high risks
  • Global travel history
  • Debts

Insurance companies also take into account the mortality cost, i.e. the sum assured or the minimum sum payable by the insurance company in the event of death of the policy holder. This is also worked out through assessing the factors mentioned above. The operational costs of insurance companies like the rental of office space, salaries of employees, commissions of agents, etc. also determine insurance premiums. Lastly, the interest earned on invested premiums is also taken into account before the premium calculation.

As can be seen, premium calculation is a multi-layered process, depending on several factors and varying from one person or policy to another. You should always use a calculator to determine the insurance premium payable on your life insurance policy prior to choosing the same or renewing it every year. These calculators are available on the websites of most insurers.

Things to consider when buying an insurance policy

Below are a few things that you must consider when buying an insurance policy:

  1. 1. Insurance premium

  2. The premium should be affordable and fit into your planned budget. Evaluate different premium payment options, such as yearly, half-yearly and monthly and choose the option that aligns with your financial situation

  3. 2. Policy term

  4. Policy term is the period for which insurance company provides life cover` to the insured. The policy term should be chosen based on your age and the needs of your dependent family members. For example, if you have young children, you might want a policy that provides coverage until they are financially independent

    3. Rider

    Rider is an optional add-on which provides additional benefit over basic coverage of the policy. Riders can include options like critical illness benefit, accidental death benefit or disability benefit. They can be added to your base policy at an extra cost to enhance protection

    4. Long-term goals

    Your insurance needs can align with different long-term goals. An endowment plan could be suitable if you are looking for a combination of protection and savings. A Unit-Linked Insurance Plan (ULIP) can be an option if you are interested in investment opportunities. A term insurance policy can be suitable for large life cover` at affordable premiums

    5. Claim process

    A straightforward and hassle-free claim process is essential for your beneficiary's peace of mind. Research the insurer's reputation for processing claims and select a company with a quick and hassle-free process. This can be gauged by comparing the insurer’s claim settlement ratio



1. Is insurance premium an expense?

Insurance premium can be considered as an investment. When you pay your insurance premium, you get financial protection against uncertainties. Insurance premiums must be seen as an investment in a financially secured future.

2. What are the types of insurance premiums?

Insurance premiums can be of multiple types. Your insurance premiums can be monthly, quarterly, half-yearly, annual, or single pay, based on the frequency of payment. They can also be fixed or flexible. Fixed insurance premiums remain the same for the entire policy duration. Flexible insurance premiums may change based on the terms and conditions of the plan.

3. Can the insurance premium change during the tenure?

Yes, insurance premium can change depending on any modifications made to your policy. For instance, adding riders can increase the insurance premiums as you would get additional financial protection from your life insurance plan.

4. Is any grace period available for payment of the premium?

Yes, life insurance plans generally provide you with a grace period for paying your premiums. If you are unable to pay your premium on the due date, you may get a grace period of up to 30 days to make the payment, depending on your plan. However, if the payment is not completed within the grace period, the policy may lapse, and all benefits will then be terminated.

5. What are the options for paying the insurance premium online?

You can pay the insurance premium online using your debit card, credit card, net banking, mobile banking or UPI, as per your convenience.

6. Can I cancel my policy, and if so, will I receive a refund of my insurance premium?

A life insurance policy can be cancelled during the free-look period. This is a window of up to 30 days right after the policy is bought. You can cancel your policy during this period if you are not satisfied or if you change your mind. In this case, you may receive your premium as a refund, subject to some deductions, as per the terms and conditions of your policy.


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` Life cover is the benefit payable on the death of the Life Assured during the policy term.
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