What is a life insurance premium?

A life insurance premium is the sum amount you pay, usually on a monthly basis, for your life insurance cover.

The cost of a premium can be as little as 20p-a-day* but differs based on each individual, the policy type and the level of cover required.

When your premium is increased due to a certain factor, it's often described as being loaded or hiked.

Watch our video on life insurance premiums and how they are calculated by insurers.

How are life insurance premiums calculated?

The cost of life insurance premiums are calculated using statistical analysis and mathematical equations carried out by underwriters.

Every insurer uses a slightly different methodology, which is why it's so important to compare multiple quotes as prices can vary.

To help explain how life insurance premiums are calculated we have broken things down into 2 categories; personal factors and policy factors.

Read on to find out how you could save money on your monthly premiums...

Personal factors that affect your premium

1) Age

As a general rule, the younger you are the lower your premium. This is simply because older people are statistically more likely to die during the policy and therefore, pose a higher risk to the insurer.

The best way to secure the cheapest price is to take out life insurance as a young adult. This enables you to lock in very low premiums for an extended period of time.

2) BMI

Body Mass Index (BMI) is calculated using your height and weight to determine whether you're a healthy proportion.

Being overweight brings with it an increased risk of a number of health implications such as heart attack, type 2 diabetes and high blood pressure.

Many of these hypokinetic conditions bring with them potentially fatal implications and as a result, present a higher risk to the insurer.

Equally, if the applicants BMI is too low (usually below 16), your premiums will also be loaded.

Body Mass Index (BMI) calculator

Use our simple calculator to work out your BMI and discover the most likely outcome of your life insurance application based on your reading.

Less than 18.5 = Underweight

Between 18.5 - 24.9 = Healthy Weight

Between 25 - 29.9 = Overweight

Between 30 - 39.9 = Obese

Over 40 = Morbidly Obese

Please fill in the required fields

3) Smoking

It’s no secret that smoking shortens your life expectancy, therefore, it's not surprising that smoking increases the cost of your life insurance premium.

This is due to the increased risk of contracting a serious disease such as lung or throat cancer. As a result, the insurer mitigates their risk by loading premiums for smokers.

It's not uncommon for a smoker's life insurance premiums to be twice that of a non-smoker for the same level of cover.

Insurers classify you as a smoker if you have used any nicotine or nicotine replacement products, including gum, patches and e-cigarettes, within the past 12 months.

4) Medical history

The presence of certain medical conditions, such as type 1 diabetes or high blood pressure, can significantly increase the cost of your premiums.

These conditions bring with them the increased risk of death, and therefore a higher risk to the insurer.

Equally, if you have previously suffered cancer, your monthly premiums will be increased.

It's also worth noting that the majority of insurers will not cover you unless you have been in remission for at least 5 years.

5) Mental health and suicide

As well as physical health, your mental wellbeing is also taken into account when applying for life insurance.

The presence of mental illness will not prevent you from being accepted for life insurance. But dependant on its impact on your life and the treatment you receive could influence the cost of premiums.

Previous suicide attempts and self-harm will again not prevent you from securing life insurance, but the application will be required to go through manual underwriting.

In this process, certain aspects such as the length of time since the occurrence and the treatment received will be taken into account.

It's also likely information will be collected from your GP.

6) Family medical history

The presence of certain hereditary illnesses, such as heart disease or certain cancers, is taken into account due to the increased risk of you contracting the disease.

As a result, your monthly life insurance premium is likely to be increased.

It's typically accepted that the medical history of your family only needs to be taken into consideration until they reach a certain age, usually 60 years.

This is due to the common understanding that certain diseases are statistically more common after this threshold.

In some instances, the hereditary disease is written into the policy as an exclusion.

This means that if you die from one of the diseases previously experienced by a family member, your policy will become invalid and a pay out will not be issued.

7) Substance use

Alcohol consumption and the use of recreational drugs both bring with them significant health risks which can shorten your life expectancy.

Therefore, regular overconsumption of alcohol or frequent use of recreational drugs also leads to increased life insurance premiums.

8) Occupation

Due to the associated risk of certain occupations, those in particular jobs will be charged a higher monthly premium.

These occupations include:

9) Hobbies

As with occupations, certain hobbies also have a higher level of risk attached to them. Therefore if you undergo what is deemed to be a high-risk activity, you'll be charged a higher premium.

These activities include:

  • Shooting
  • Deepsea fishing
  • Horse riding

10) Travel

Frequent travel to certain countries associated with high levels of disease and/or increased levels of violence can bring with it inflated premiums.

Whether for work or pleasure, travelling to countries such as Libya, Syria, Iraq or Somalia can bring with it a higher life insurance premium.

Visit the UK Governments foreign travel website for information on over 200 countries.

11) Gender, (not anymore)

In the past women have enjoyed lower life insurance premiums due to statistically living longer than men.

However, on 21st December 2012, The European Court of Justice Gender Directive was introduced and it became illegal to take into account gender when calculating premiums.

It's thought that even after the UK leaves the EU, this law will remain in force and men and women will continue to be treated equally.

Policy Factors that affect your premiums

There are 4 key areas associated with your policy that impact the cost of your life insurance premiums:

1) Level of cover

Essentially, the greater the policy pay out amount, the higher your monthly premiums.

The pay out sum you require will be determined by what it is you're looking to cover. This commonly includes a mortgage, outstanding debts, daily living expenses and funeral costs.

Additional policy elements such as critical illness cover or terminal illness cover may also increase your premiums due to the increased level of cover you receive.

2) Type of cover

There are a range of life insurance policies available, each carrying a different price tag and offering different levels of protection.

For example, term-based life insurance (level and decreasing term) pays out if you die during the policy, whereas life assurance (whole of life and over 50s plans) pays out when you die.

Due to the guaranteed pay out associated with life assurance, these policies generally carry a higher monthly premium.

The pay out sum attached to level term life insurance holds its value throughout the term of the policy, whereas the pay out sum for decreasing term life insurance reduces over time.

As a result, decreasing term policies are usually cheaper.

With regards to life assurance, whole of life insurance policies tend to offer lower premiums than over 50s plans.

This is because over 50s plans offer guaranteed acceptance without the need for any medical information.

3) Length of cover

For fixed term policies, the longer the policy term, the higher the monthly premium.

The logic being, the longer you are covered, the more likely the insurer will have to issue a pay out.

With regards to whole of life policies, there's usually a set period for which your life insurance premiums are fixed (usually 10 years).

Once this period has passed, the insurer reserves the right to review your premium and potentially increase them if you have suffered any medical issues during this time.

4) Premium type (guaranteed or reviewable)

There are two types of life insurance premium, guaranteed and reviewable.

  1. A guaranteed premium - the cost remains fixed throughout the policy, (or until you pass away in the case of whole of life)
  2. A reviewable premium - the cost is reviewed by the insurer at regular intervals and can be increased

Reviewable premiums are usually cheaper at the start of a policy but can end up being more expensive in the long term.

With guaranteed premiums, you enjoy the certainty of what your life insurance costs and can budget accordingly.

How to make your premiums more affordable?

There are a number of ways to ensure your life insurance premiums are as low as possible.

  • Each insurer uses a different underwriting process, so shop around to get the best deal
  • Using an FCA-regulated life insurance broker, such as Reassured, could save you time and money
  • Taking out life insurance whilst young can significantly reduce the cost
  • Adopting a healthy lifestyle/stopping smoking can reduce premiums
  • Losing weight could avoid your premiums being loaded due to an increased medical risk
  • Ensure you only take out the level of cover you require
  • Consider taking out joint life insurance (one monthly premium)
  • Ensure the type of policy you choose best meets your needs
  • Paying your premiums annually can result in a decent saving
  • Review your policy extras and consider whether you require them

Why you shouldn’t lie for lower premiums

With so many factors potentially increasing the cost of your life insurance premiums, it can be tempting to falsify or withhold information to secure yourself a lower premium. This is known as non-disclosure.

However, it's vital that you are open and honest on your application.

Insurers can request medical information from your GP to determine your medical wellbeing and to clarify any information you have provided during the application.

Also, if upon your death, it's discovered that you lied during the application, the insurer reserves the right to deny a claim.

Refund of life insurance premiums

Cancelling your life insurance within the first 30 days will result in a full refund of all premiums paid into the policy.

Unfortunately, cancelling your cover after this initial period won't result in a refund.

Are premiums paid on life insurance tax deductible?

Unfortunately, no.

Personal life insurance isn’t tax deductible when filing your tax return.

This is different from group life insurance premiums which are usually paid for by an employer and are tax-deductible.

What happens if you stop paying life insurance premiums?

Stopping paying your life insurance premiums will result in the cancellation of your policy.

Therefore, if you pass away, your cover will be invalid and no pay out will be made to your loved ones.

If you miss a payment, it may be possible to keep your cover intact by contacting your insurer, explaining the situation and making any required payments.

Help from the life insurance experts

As mentioned previously, the best way to secure the lowest premium is to compare quotes.

You can do this yourself online, or alternatively, you can get in touch with a life insurance broker, such as Reassured.

Why not save yourself time and money and let us source quotes for you to compare?

And the best bit is, there’s absolutely no fee for using our award-winning broker service.

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