How do I calculate my premiums?
When you make your application, you can decide either how much you wish to pay each month – which, combined with the desired length of your policy and the type of insurance you want, will give you a projected payout – or you can decide the size of your payout. In the latter case, the insurer will then work out an average life insurance cost spread over monthly premiums.
Since it’s difficult to determine an average life insurance cost for everyone, you will need to assess what your personal needs and circumstances are to get an accurate life insurance estimate. Considerations may be your mortgage, your cost of living, how much your life insurance costs will be dictated by the type of insurance you need, the size of the payout you want and your existing savings or saleable assets. As a rule of thumb, the lower the payout, the lower the monthly premiums.
Life insurance premiums are also based on the risk the policy holder poses to the insurer. Therefore, the higher the risk, the higher the premiums. More detail is given on what is considered higher risk below, or you can take a look at our guide.
Average cost of life insurance
There isn’t an average cost of life insurance. If you think about the needs you currently have and compare them to those of your parents or children, they will probably differ wildly. However, you may both want the same type of insurance policy.
The important factors that insurers will need to know about your health include:
- status as a smoker or non-smoker
- family medical history
- lifestyle concerns (such as alcohol consumption)
- any known diseases or disorders
- whether you have or have had diagnosed mental health issues.
This isn’t an exhaustive list, and different insurers will vary in which of these they ask for and the level of scrutiny that they require.
Your profession may also play a role when assessing risk for an insurer. Someone whose job involves working in dangerous environments – such as underwater or around explosives – will find that how much they pay for life insurance each month is higher than (for example) a primary school teacher.
Moreover, being self-employed may affect your life insurance estimate. This is because it is normally harder for self-employed people to obtain high credit scores, and doesn’t necessarily reflect your individual situation.
How can you improve your life insurance estimate?
If you want to reduce how much you will pay for life insurance per month, you might need to do some projections for the time at which you take out your policy. For example, if you are a smoker and you quit smoking the week before taking out a life insurance policy, this is very unlikely to have a positive effect on your premiums. Most insurers will require you to have been an ex-smoker for at least a year before it will be reflected in your premiums. (Bear in mind that ‘smoking’ includes all nicotine products, including patches and e-cigarettes.)
The same logic applies to all lifestyle habits. If you were to reduce your alcohol intake or lose weight, the amount you could pay for premiums may be less when you look at policies than it would have been if you hadn't made those changes. It’s important that you do this before taking out a life insurance policy, as it is very difficult to alter the size of your premiums once a policy is taken out.
There are things that you can control and things you can’t. Your age, for example, is (unfortunately) only going to move in one direction. As it is also likely that you will suffer fewer health problems at a younger age, your premiums may be lower the earlier you take out a life insurance policy.
Do bear in mind, though, that term life products have a defined lifetime. Since life insurance policies only pay out upon your death, taking out a thirty-year policy on your 18th birthday will hopefully not be advisable, even if the premiums are attractively low at this time.
Life insurance will have different costs depending on what stage of life you’re at and what your financial situation is. If it is something you are considering, then use our life insurance calculator a few times, altering the variables that you have control over, to find out the type and amount of cover you need. From this, you could to be able to judge the average cost of life insurance for you.