What is a Life Insurance Premium?
Payments you make on a monthly, quarterly, semi-annually or annual basis for the cost of your life insurance policy.
- updated last on January 31, 2022
What is a premium in insurance
Life insurance is paid through premiums, and you get to choose the most convenient time to pay for it. Policyholders can choose from monthly,bi-annually, annual payments. Hence, it is crucial to ensure not to miss any payments to keep your policy active. In the case of missed payments, the policy will lapse.
Purchasing life insurance means that you are getting coverage to safeguard your family’s future in case of an untimely death. Payments are known as premiums. It keeps the policy active until the time when your family needs to claim the death benefit.
A premium insurance company sets the amount of premium, and it’s based on several factors such as age, health status, length of coverage type, and add-on or riders. After signing a policy and payment of the first premium, the coverage is set for the policy’s entire term.
Important Takeaways
- There are six crucial factors to remember that will set premium rates such as age, type of policy, length, health, and additional feature
- Life insurance policyholder can choose from monthly, bi-annually, or annual premium payment
- Premiums paid for life insurance is tax-free
What is a life insurance premium?
Premiums keep your policy in force, and as long as you pay religiously, the coverage will remain active for the rest of its duration. It depends on the type, like term life or whole life insurance coverage.
Permanent or whole life insurance premiums
If you choose permanent life insurance or whole life insurance, it means that the policy will run during your entire lifetime. That is why you should be ready to pay for it your whole life as long as you live. You will stop paying by the time of your death or reach the age of 100. As long as you keep on paying for premiums, then your policy will stay active.
Term life insurance premiums
This type of coverage stays active for a certain period, as the name implies, term. Typically, a term life insurance policy lasts for 10, 15, 20, or 30 years. The policyholder pays for the premium during the term. However, right after the expiration date, you no longer need to pay the premium if you don’t need the coverage.
How often is life insurance paid?
Most policyholders choose to pay for their policy every month. However, an annual payment allows you to save money. Some insurers can offer discounts for up to 2 to 5 per cent if you plan to pay in a lump sum rather than paying for it monthly. The savings that you can get may add up after several years of payment. The money that you can save may be used for other purposes.
What are the methods of payment for life insurance premiums?
The method of premium payment may vary according to the insurer. The most common form of payment is through electronic fund transfer of EFT and check. Other insurance providers may offer more choice for method of payment. However, most insurers do not include credit card payments as an option beyond the initial payment. Also, none will accept cash as payment.
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What are the elements of life insurance premiums
There are three basic elements to whole life insurance premiums: policy expense, mortality, and cash value. These three elements play an important part in determining whole life insurance premium rates in underwriting.
How to determine life insurance premium rates?
There are many factors to consider when setting the life insurance premium rate.
1. The Type of Coverage
As mentioned a while ago, the whole life policy does not have an expiration. Therefore, it is active as long as you are alive and paying the life insurance premium. Aside from that, it has an added cash value feature that may gain or lose values overtime. The cash value is beneficial in case you need cash for emergency purposes.
It maybe takes out as a loan. That is why the premium paid for whole life is 5 to 15 times higher than term life. The term life has the cheapest premium and the best option for many.
2. Amount of Coverage
Comprehensive life insurance coverage will surely cost higher. The higher the amount of coverage, the more premium you need to pay.
3. Length of Policy Term
More extended policies like whole life, which is permanent, have higher premiums. It is because you are covered for a lifetime even if you develop a health condition later in life.
4. Age by the Time of Application
Premium rates tend to get higher as they get older. So, the older you set your mind to getting life insurance, the higher your premiums will be.
5. Other Risks Factor (hobbies, habits, job, credit score)
How risky you are as a policyholder adds up to premium rates. For instance, your family health history and your medical exam result may influence the amount of premium. Also, driving record, risky hobbies, jobs, and bad habits play a significant factor in determining the premium amount.
All of this information is essential for insurers during the underwriting process. The underwriters will do a thorough background check to know your premium.
6. Riders and Add-ons
Riders are added features into the policy to make the coverage more valuable to the policyholder. Some insurers may offer free riders as part of the policy, but most riders will increase premium rates. Some of these riders are:
- Return of premium riders
- Long-term care riders
- Critical care riders
- Waiver of premium riders
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Life insurance premium cost vs. Life quotes
Quotes and premiums are related because quotes estimate the premium provided by life insurance providers or brokers. It is essential information for someone who is applying for a policy. Also, during the application process, the client will have a rough idea of what he/she may need to pay in the future.
On the other hand, the premium is the insurance provider’s price right after the underwriting process, and it is the exact amount that you should pay for the entire duration of the policy.
There are two vital stages for a quote to become premiums. First is the premium quote and the final step is the actual premium.
Stage 1: Online Quotation
There are two ways to acquire an online life insurance quotation. The first is directly from an insurance provider of your choice. The second is from an independent insurance company like Coach B. Quotes will give an estimated premium based on your personal information.
There are a series of questions that you should answer regarding your family history, health status, age, driving record, etc. Questions depend on the insurer. After providing an accurate answer, we will calculate your premium.
The quotation that you will get is as accurate as your information. That is why giving detailed and truthful information is vital. Therefore, the more information you provide, the more precise the result will be.
Stage 2: Phone Interview
The amount from the online quotation is not the final premium. It is vital to go through the second stage, which is the phone interview.
At this stage, you must talk to an agent, and most insurers require a phone interview. The agent will ask detailed questions to see the complete picture of your health condition, and additional information you will provide from the consultation may change the estimated quotation.
Remember not to keep information about your health and answer all questions honestly. Afterwards, the agent will share the updated quote.
The agent will set up a medical examination for free or request previous medical records and documents from your attending doctor. Aside from that, the agent may ask for the attending physician statement or APS.
In case you have answered truthfully during the interview, and there is no added information from your medical record and exam. Your application will be approved at a very close amount from the phone call interview.
Stage 3: Underwriting Process
The last stage of the process is underwriting, wherein the underwriter will thoroughly review all your records like medical exam results, application forms, and other documents. It will determine your insurance classification and rates.
After your classification is set, detailed of the policy may not be, you still have the opportunity to decrease the term or the death benefit to lower down the premium rate.
After signing all paperwork and paying for the first month’s premium, then your policy is set and remains constant across its duration.
Are life insurance premiums tax-deductible?
Premiums paid are not tax-deductible, and there are some advantages when it comes to the death benefit. Most of the time, death benefits are tax-free. However, there are exemptions, like if your employer is the one paying for premiums from a group life insurance policy.
Death benefits from this type of policy are subjected to taxes. Another scenario is if the death benefit is paid through your estate instead of an individual beneficiary. The estate itself is subject to taxes.
What will happen in the case of unpaid premium?
If you cannot pay the monthly premium because of unforeseen circumstances, the insurer usually provides a grace period of 1 month. It is the time provided by the insurer to give you enough time to recover and pay for miss premium before they cancel the policy. An extension is possible for exceptional cases, but it still depends on your insurance provider.
For instance, most life insurance providers are extending their grace period up to 60 to 90 days during this time of Pandemic. If you want to acquire an extension period, it is essential to contact your insurer and inform them about your current circumstance.
Tell the company how the situation has impacted your financial stability. Some insurers may require submission of documentation, but many providers approve extensions with just a phone call.
Moreover, if you ask for an extended grace period, you must set up a reasonable payment plan to pay back your miss payments.
Is it possible for the life insurance premiums to change?
Most term life insurance offers the same premium throughout your policy. It is called the level term life insurance, but another type is the annual renewable term life policy. It is not a common type of term life, and it provides a changing premium annually.
Furthermore, there is annual renewable life insurance with a one-year term. The policyholder has an option to renew the policy every year for a determined number of years. It is one of the cheapest types of coverage, but it might end up more expensive. Hence, if you develop a health condition or terminal illness, then you are not eligible for renewal.
Premiums are the core elements of any life insurance policy. That is why it is vital to understand its works, its means, and what it offers. Therefore, it is good to get a free life insurance quote today to determine how you can work out your budget to pay for the premium before toy apply. The amount of premium you will pay for the coverage is worthy of the peace of mind knowing that your family is secured.
Frequently Asked Questions
How is life insurance premium determined?
Life insurance premium rates are determined based on several factors, including the age and gender of the policyholder, the type of life insurance policy purchased, any health conditions or lifestyle choices (such as smoking) that could impact the risk of death, and the amount of coverage desired. Insurance companies also use algorithms to determine how likely someone is to file a claim to calculate their premium rate.
What's the right amount of life insurance for me?
The right amount of life insurance for you will depend on your family's specific needs and financial situation. Consider what debts must be paid off, how much money your potential beneficiaries will need to cover ongoing expenses – such as rent or mortgage payments, college tuition, and more – and how long they may need the support of a life insurance policy to recover financially after an unexpected death fully.
What does premium mean for life insurance?
The premium is a payment made by the insured party to the insurer for insurance coverage or policy. For life insurance policies, the premium payments are paid according to the length and amount of coverage elected. Generally, these payments are usually on a monthly, quarterly, semi-annual, or annual basis. The payment amount depends on age, gender, lifestyle habits, and other personal characteristics that indicate risk level.
About Coach B.
After starting his financial career with Phoenix Home Life Insurance Company back in 1992, Scott decided he wanted to provide people with an easier and more enjoyable way to buy life insurance. That was the start of Coach B. Life Insurance, whose mission is to be transparent, honest, and helpful to customers — without ever bugging or pushing them.
In the years since then, he has worked tirelessly to improve the process of shopping for insurance. His goal is to make sure that everyone who comes to Coach B. — whether they end up buying a policy or not — has the best possible experience.
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