What Is A Life Insurance Premium

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    What Is A Life Insurance Premium: How Your Payments Are Used

    If you have a life insurance policy, you’re required to pay a premium. These payments are required to keep your life insurance policy active – failing to pay could terminate your insurance protection.

    But what exactly is a premium, and why are everyone’s rates different? In this guide, we’ll go over all the important information about insurance premiums including what it pays for, how it’s calculated, and what you can do to get lower premiums.

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    Understanding Life Insurance Premiums

    Premiums are what a life insurance company charges you in exchange for insurance protection. These life insurance premium payments keep your policy active during its coverage period. 

    Generally, life insurance premiums are paid in periodic installments. They’re most often paid monthly, but insurers may also offer quarterly, semi-annual, or annual premium payments. If you pay annually, life insurance companies may provide discounts – usually from 2 to 8 percent.

    If you fail to make these payments, your policy will go into a “grace period”. This grace period gives you extra time to make your premium payment. However, if the grace period passes without a premium payment, your policy may lapse and you’ll lose your protection. You can only reinstate your coverage if the life insurance company allows you to do so.

    Calculating Your Life Insurance Premium 

    Insurers determine your insurance premium during a process called underwriting. In this process, the life insurance company takes into account your risk factors to calculate an insurance rate for you. 

    Let’s go over a few key factors that influence your premiums. 

    Your Insurance Policy

    Your premium amount is mainly determined by the type of policy you have. A long-term life insurance policy would have a higher premium. More features or riders would also result in higher premium costs. For example, a whole life insurance policy with a cash value component would cost 5-15 times more than a 20-year term life insurance policy.


    With every year you age, the chances of you dying during your insurance coverage period increases – and so does the likelihood that the insurer will have to release a payout. This is why age is one of the biggest factors that influence your insurance rates. Insurance companies typically require a higher regular premium payment the older you get.


    Alongside age, another key personal factor is your physical condition. Most insurance providers will require you to take a medical exam to assess your physical well-being. If the life insurance company finds that you’re in good health, you’ll get a more favorable premium cost compared to someone with medical issues.

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    How Do Insurers Use My Premiums? 

    Insurers use your premium payments for several different things. In this section, we’ll explain the most common uses of your premium payments.

    Paying Out Your Death Benefit

    The main benefit you’ll reap from premium payments is your life insurance coverage. This coverage comes in the form of a death benefit, which is paid out to your beneficiaries upon your death. If you don’t make your premium payments, your policy may lapse and your beneficiaries won’t be eligible for any claims.

    Building Up Cash Value

    Most permanent life insurance policies (e.g. whole life insurance) feature a cash value that grows as you pay your premium. You can eventually withdraw this cash value or take a policy loan against it if you ever need additional funds. Your cash value can also be used to pay for your insurance premium, which means that you no longer have to pay for your insurance out-of-pocket.

    Funding Your Investments

    Some types of insurance (e.g. variable universal life insurance) invest your cash value in stock and bond accounts. The returns you get from these investments will further build your cash value. This lets you diversify your investment portfolio and use your life insurance policy as an extra source of income.

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    Tips For Getting Lower Premiums 

    Life insurance premiums are determined by many factors, some of which may be outside of your control. Sometimes, these factors could make insurance prohibitively expensive. In this section, we’ll give you several tips on how to get lower insurance premiums for your policy.

    Work With An Independent Insurance Agent

    Shopping around for insurance allows you to compare policies and find the right one for your needs. However, navigating the life insurance market can be tricky. 

    This is where life insurance agents come in. By going through an independent agent, you’ll be able to leverage their expertise and save time. Independent insurance agents can help you find the best-valued life insurance policy from a wide range of insurers. They can also find policy discounts that you might have missed, giving you better deals.

    Change Your Lifestyle

    In addition to age and family medical history, there are other factors that influence your premium cost. One of these factors is your lifestyle.

    A healthy lifestyle makes you less risky to insure, which means you can get more favorable premiums. Since smokers are usually seen as much riskier than non-smokers, going smoke-free will net you lower premiums.

    Your career choice also influences your life insurance rate – if your occupation puts you at a higher risk of injury or death, you may be charged higher premiums. The same applies to your hobbies. Regularly participating in dangerous activities such as mountain climbing or horse riding will get you higher rates. 

    Adjust Your Life Insurance Policy Value

    A higher amount of coverage isn’t always better, especially because it could significantly drive up your premium. To save money, you should only get enough coverage as necessary for your situation. As a rule of thumb, experts recommend a face amount equivalent to 10-15 times your income.

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    Closing Thoughts 

    Insurance companies require you to make regular premium payments to keep your life insurance policies in force. Your premium is determined by how risky you are to insure. While you can’t change some risk factors, you can still drive your premium down by comparing policies, improving your health, and adjusting your insurance value.

    Looking to find the right life insurance policy with affordable premiums? Wesley LLC is here to help! Our professional team can advise you on how to find the best value life insurance policies. Contact us today for more information!

    Written By Cameron McDowell
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