What Are Life Insurance Premiums?

A life insurance premium is the sum of money you’ll need to pay an insurer in return for providing you with life cover. The life insurance premium you’re asked to pay will depend on many factors relating to you and the policy you choose.

Tim Leonard Last updated on 02 August 2022.
What Are Life Insurance Premiums?

Keeping up to date with your life insurance premiums is essential if you want your life cover to remain in place and pay out when it should. Read on to find out more about life insurance premiums, including the different types of premium available and how life insurance premiums are calculated.

What is a life insurance premium?

A life insurance premium is the amount you must pay an insurer for a life insurance policy. In return for paying life insurance premiums, a policy is designed to pay out a lump sum to your beneficiaries or estate if you were to die during the policy term.

Paying life insurance premiums can provide peace of mind that your loved ones will have a certain level of financial support to rely on if you die while the cover is in place.

» MORE: Do I need life insurance?

How do life insurance premiums work?

Typically, life insurance premiums are paid either annually, quarterly, or monthly. Your cover will only usually remain in place by keeping up to date with the life insurance premiums that you’re required to pay.

If you fail to pay life insurance premiums when you should, it might invalidate your policy, meaning it won’t pay out even if you die within the policy term. One exception might be if you have waiver of premium benefit on your policy and you’re unable to pay your premiums because ill health or injury prevents you from working.

» MORE: Waiver of premium explained

Are there different types of life insurance premium?

Life insurance premiums are either guaranteed or reviewable.

With guaranteed premium life insurance your premiums are fixed and will remain the same throughout the policy term. This gives you certainty over what you’re expected to pay.

With reviewable premiums, how much you pay is reviewed at certain points during the policy term. This means they are likely to rise, although reviewable premiums tend to be less expensive than guaranteed premiums at the start of the policy.

When you apply online using our comparison tool, our partner LifeSearch only offers guaranteed premiums, which won’t change for the duration of your policy. Reviewable premiums might be available but you will need to talk to a LifeSearch adviser.

How are life insurance premiums calculated?

Insurers calculate life insurance premiums by looking at a number of factors. Some relate to you on a personal level, and in particular how risky an insurer thinks it is that you could die during the policy term that you want. Others relate to the policy itself, including the type of cover you would like and how much.

Things about you that affect premiums

When applying for life insurance, be prepared to share the following personal information:

  • Age: Generally, premiums get more expensive the older you are when you apply, simply because insurers feel you’re likely to have less time to live.
  • Weight and height: Being overweight for your height can be taken as a sign you’re at greater risk of certain health problems that could shorten your life.
  • Health and family history: If you have certain pre-existing medical conditions, mental health problems, or there is a history of certain conditions running in your family, you can usually expect higher premiums.
  • Lifestyle: The cost of life insurance tends to be higher if you smoke, drink more than the recommended alcohol limits, or take recreational drugs, as these can be detrimental to your health.
  • Job and hobbies: The riskier an insurer considers your line of work or the leisure activities you take part in, the more expensive your life insurance is likely to be.
  • Overseas travel: If you regularly travel to certain countries, or have recently returned from abroad, an increased risk of contracting serious disease or encountering trouble could lead to higher premiums.

Things about your policy that affect premiums

The make-up of your policy and the cover you want will influence your life insurance premiums as well, including:

  • Cover type: Different types of life insurance can bring very different premiums. Decreasing life insurance is generally less expensive than level term cover, while a whole of life policy will cost more than both, because of the certainty it will one day pay out.
  • Joint cover: If both parties are similar in age, health and lifestyle, sometimes taking out joint life insurance can work out cheaper than paying for two single policies, but it’s important to remember that joint policies only pay out once.
  • Amount of cover: The larger the payout your life insurance might provide, the more you can expect to pay for your premiums. Only taking out the cover you need can help keep premiums down.
  • Policy term: The longer the period you would like your policy in place, the higher that life insurance premiums tend to be.
  • Type of premium: Reviewable premiums are usually cheaper than guaranteed premiums at the beginning, but there is a chance that reviewable premiums will rise.
  • Additional benefits: Choosing to add an option, such as critical illness cover or waiver of premium benefit, will usually increase the cost of premiums.

Each insurer has its own method of calculating life insurance premiums – that’s why it’s so important to compare life insurance quotes.

Crucially, answer any questions an insurer asks you honestly, as your policy could be made invalid, and not pay out, if you don’t tell the truth.

How long do you pay life insurance premiums?

With term life insurance, premiums are payable for the entire duration of the policy term. If you fail to pay your premiums when you should, your policy could lapse, and there may be no payout if you die. The exception might be if your policy includes waiver of premium benefit and it’s been activated, because you’re off work due to illness or injury and can’t afford to pay.

The same generally applies to whole of life policies, where you’ll need to be prepared to pay premiums for the rest of your life, because that’s how long your cover lasts. That said, some whole of life policies have a maximum age beyond which you stop paying premiums, but your cover remains in place. This might be somewhere between 80 or 90 years old, depending on the insurer, but you’ll need to check the policy terms and conditions to see if it’s included and when it might begin.

Are life insurance premiums paid monthly?

Life insurance premiums are most often paid monthly, although you may find some insurers that offer the option to pay quarterly or annually.

What happens if I can’t pay my life insurance premium?

Generally, a life insurance policy becomes invalid and won’t pay out if you miss any of your premiums. This might not always be the case if your policy includes waiver of premium benefit and you can’t pay because you’re unable to work for medical reasons. You’ll need to contact your insurer to see if you’re eligible for waiver of premium to be activated.

Talking to your insurer is also a good idea if you don’t have waiver of premium benefit, as some might allow you extra time to pay before a policy is cancelled.

How can I compare life insurance policies?

Thanks to our partnership with LifeSearch, you’re able to compare life insurance quotes right here.

You can choose from different types of life insurance, including level term life insurance, decreasing term and joint life cover, and combine this with critical illness cover as well if you want protection against serious illness. If you have any questions, or want to discuss your protection needs, LifeSearch advisers are also on hand to take your calls.

» COMPARE: Life insurance

Image source: Getty images

About the author:

Tim draws on 20 years’ experience at Moneyfacts, Virgin Money and Future to pen articles that always put consumers’ interests first. He has particular expertise in mortgages, pensions and savings. Read more

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