What is a life insurance premium?
A life insurance premium is money you pay to have life insurance.
Life insurance premiums are generally paid monthly or annually. Your premium can usually be paid the same way you pay other bills, including cash (within limits), cheque, automatic withdrawal from a bank account or electronic funds transfer.
If your life insurance is part of your workplace benefits, your premium may also be deducted from your paycheque.
How life insurance premiums are calculated
There are several factors that determine the amount of your life insurance premium.
Risk factors
The process of assessing the risk you present when you apply for life insurance is called underwriting. Underwriting will determine if you qualify for insurance and will determine the amount of coverage you can get and your risk level. The premium will be based on this and the type of insurance you select.
Some factors that determine your risk level include:
- Age – Generally life insurance is less expensive when you’re younger. That’s why it makes sense to lock-in your life insurance when you’re younger and healthier or buy life insurance for your child.
- Gender – Women live longer than men on average so their life insurance may cost less.
- Tobacco use – Smokers are at a higher risk than non-smokers, so their premiums generally cost more.
- Other health issues – If you’re overweight, have high blood pressure or high cholesterol, a previous illness, organ transplant or a family history of certain diseases like cancer, your life insurance premiums will generally cost more.
- Work/lifestyle – If you’re in the military, have a dangerous job, participate in risky activities (e.g., skydiving), or you have a poor driving record or criminal history, your insurance costs generally will be higher.
The life insurance company can’t increase your life insurance premium once it’s determined. However, Iif your health improves, you stop smoking or other risk factors change, you can request the life insurance company reassess your risk and possibly lower your premium.
Type of insurance
Generally, the initial premiums for term life insurance coverage will be lower than for permanent life insurance. That’s because term life insurance provides coverage only for a specific period of time, while permanent life insurance provides coverage for your entire life. It Permanent life insurance may also help you build wealth inside your policy, within limits, that you can access during your life.
Coverage amount
The more life insurance coverage you request, the larger your premium will be.
What if you stop paying your life insurance premium?
Generally, if you stop paying your premium your life insurance coverage will be cancelled. This may also be true for some permanent life insurance plans.