Before zeroing in on a policy, it is important to understand how the annual premium is determined. Irrespective of the type of policy one wants to buy, its annual premium depends upon various factors of the insureds’ life. Listed below are some of the important factors that affect the premium of an indemnity plan.

Personal Factors

• Age- The age of the insurance buyer is directly proportional to the premium of the policy. So, it is best to get a policy as early as possible. Younger individuals are considered to be healthier as compared to older individuals and tend to pose a lower risk to the insurer. Thus, the premium of a policy bought at a younger age is more affordable.
• Gender- According to studies, it has been found that women generally outlive men. Moreover, as per statistical findings, it has been observed that women generally go to the doctor more often than men. Thus, these factors mark women as low-risk individuals, as a result of which they are assigned a lower premium.
• Medical History (Self & Family)- The medical history of an individual and his/her family is a significant factor which determines the premium amount of coverage policy. The premium amount of a policy depends on the severity of any past or current illnesses. For example, if an insurance buyer proves that he/she has totally recovered from a critical illness and is taking good care of his/her health then the insurer may charge a lower premium. However, the reduction of the premium rate depends on the insurer and type of life insurance policy an individual opts for. In certain cases, like cancer recovery, most of the companies do not offer a cover until the policy buyer proves that he/she has been in remission for a minimum of 5 years.
• Marital Status- Marital status of an individual plays a vital role while deciding the premium amount and processing the insurance application. If couple buys a joint life insurance policy, then the premium of the policy will be higher as compared to the regular policy. It is important to keep in mind that in a joint plan the payout is given on a first death basis and there is no payout in case of loss of the second partner.
• Weight and Height- While determining the premium rate, the insurer considers the individual’s BMI (Body Mass Index). As obese people are more prone to suffer from weight-related medical problems, they will have to pay a higher premium on their indemnity policy.
• Occupation- The occupation of an individual plays a significant role in determining the premium of the policy. For instance, pilots, soldiers, individuals working in the mining industry, oil and gas plants, or any other dangerous profession have to pay a higher premium.
• Debts- Any unpaid debts, including mortgages, loans, credit card bills, etc. are major factors that determine the amount of protection one is offered.
• Drinking and Smoking- An individual will be classified as a smoker by the insurance company regardless of whether he/she is a light smoker or a heavy smoker. Thus, this results in a higher premium amount. Similarly, those who regularly consume alcohol can be subjected to an inflated premium, because it escalates the chances of alcohol-related health problems in an individual.
• International Travel- If the insurance buyer is a regular traveler and visits places that pose potential health risks, or have a high crime rate, or see regular acts of terror, s/he may be charged a higher premium. For instance, traveling to countries in Eastern and Southern Africa, where a high percentage of the population suffers from HIV, will likely result in a heavier premium than travelling to Norway.

Insurer Related Factors

• Mortality Cost- Mortality cost is the amount paid by the insurer on policies. The insurance company considers the age of the applicant, health history (self and family), employment, driving records, hobbies, etc. while determining the premium amount for an individual.
• Operating Cost- The total operational cost that the insurer incurs towards non-marketing and marketing expenses like rent, maintenance, legal fees, salaries, agents’ commission, etc. affects the life insurance policy of an individual and how the premium is calculated.
• Interest- In certain policies, the company invests the insured premiums in real estate, bonds, stocks, etc. under the assumption that the insured will earn a particular rate of interest on these investments. This interest-earning is another important factor while determining the premium rate of a life insurance plan.

Policy Related Factors

• Whole Life VS Term- As whole life insurance policies provide coverage until death, they generally charge higher premiums as compared to simple term plan that provide coverage only for a fixed number of years.
• Decreasing Pay-outs- The life insurance premium calculation also depends upon whether an individual wants to have the extent of coverage decrease year after year, or s/he decides to have a fixed cover for the entire tenure of the policy.
• Covers- In case an individual opts for a joint life cover, then the premium amount of the policy tends to be higher, because the plan is more likely to see a claim at some point. Moreover, a policy that provides critical illness cover like heart disease, diabetes, hypertension, etc. will also charge high premium rates. The premium rates are expensive for individuals above 60 years of age or those suffering from any pre-existing diseases.