What is Premium in a Life Insurance Policy?

What is the Meaning of a Life Insurance Premium?

A life insurance premium is the amount of money you pay to an insurance company in return for the life cover you have chosen. It acts as the price of your protection plan and keeps your life insurance policy active for the entire term. When you pay the premium regularly or as a single payment, you ensure that your family will receive the promised sum assured in the event of your unfortunate death during the policy period.
The insurer calculates the premium after evaluating multiple factors such as your age, gender, medical history, lifestyle habits like smoking or drinking, occupation risks, policy duration, and the amount of coverage you want. For instance, a younger and healthier person usually pays a lower premium compared to someone older or with existing health issues.
Premiums can be paid monthly, quarterly, half-yearly, or annually, depending on your financial planning needs. Paying on time keeps your policy active, prevents lapses, and maintains your family’s financial security. In short, timely premium payments sustain your life insurance policy and keep your family’s financial safety net intact.

How Does Life Insurance Premium Work?

Let’s understand how life insurance premium works with the help of an example.
Ramesh is a 31 year old non-smoking male, with an annual income of Rs. 12 Lakhs. He bought a term insurance plan of 1 Crore life cover for a 30 years policy term to secure his loved ones’ financial future. He now pays Rs. 1015/month as his life insurance policy premium, and will continue to pay the same amount for 30 years.
Generally, life insurance premium amounts are paid monthly, quarterly, or yearly depending on your requirements. However, you can use the life insurance premium calculator to calculate, based on your savings and income, how much life insurance coverage you will need.

How to Calculate Life Insurance Premium?

You can calculate the premiums applicable to your life insurance plans by using a life insurance premium calculator:
Step 1: Visit the life insurance premium calculator of Policybazaar
Step 2: Select the right age, gender, policy term, sum assured, and smoking habits
Step 3: The applicable premiums for your profile will be displayed on the screen
Step 4: You can click on the ‘Check your premium’ button to see the available plans

What Are the Factors that Affect the Life Insurance Premiums?

Below are the factors that affect the life insurance premiums of an individual:

• Age and Gender: Your age and gender significantly influence the premium for your life insurance. Younger individuals typically pay lower premiums because they are considered healthier and less likely to file a claim in the near future. As age increases, so does the risk of health issues, leading to higher premiums. Gender also influences the rate; women in India generally pay lower premiums than men, as they tend to have a longer life expectancy and lower mortality risk.

• Family Medical History: Insurers consider hereditary health risks when evaluating applications. If your family has a history of illnesses such as heart disease, diabetes, or cancer, your premium may be higher since you could be more prone to similar health issues.

• Current Health Conditions: Your overall health significantly impacts your premiums, as people who are predisposed to a serious illness are more likely to claim life insurance.

• Lifestyle Choices: Certain lifestyle factors, like smoking, consuming alcohol, or engaging in risky activities, can lead to higher life insurance policy premiums because they increase the likelihood of health issues.

• Sum Assured: The amount of coverage you want also influences your life insurance premiums. Policies that provide a large cover usually have a large premium as well.

• Policy Term: Usually, a longer policy term will have a larger life insurance policy premium.

• Occupation Type: If you are a salaried employee, you may have to pay a lower premium than self-employed individuals. This is because many insurers think that self-employed individuals have an unstable source of income.

• Types of Life Insurance: The type of life insurance can also impact your life insurance premiums. For example, term life insurance is much more affordable than other types of plans that offer wealth creation benefits.

• Income: Though your salary may not affect the premium amounts directly. It can indirectly affect the monthly cost of life insurance. In case you are into a high income group, you will likely get to buy a high coverage amount. A high amount of life cover can increase the premium amount of the plan.

• Weight and Height: Your weight and height are used to compute body mass index (BMI). The BMI (Body Mass Index) is a health indicator and helps the insurer understand the risks. Your body can be susceptible to illness if your weight is not directly proportional to your height. In order to cover this type of risk you might be charged high amount of premium.

How to Pay Life Insurance Premiums?

There are several ways to pay your life insurance policy premiums. Policyholders can choose the most suitable type of insurance premium payment mode when buying the policy. You can also select the premium pay term, such as regular or limited, according to your suitability in either offline or online mode.  

Let’s first understand how to pay the premiums online.

If you want to buy a New Life Insurance Plan and Pay its Premium:

Step 1: Visit the life insurance page of Policybazaar

Step 2: Fill in the required details like your name, gender, and contact details

Step 3: Select the applicable education backgrounds, annual income, smoking habits, and occupation type

Step 4: Choose the best life insurance plan in India and proceed to pay the first life insurance premium

If you already have an Existing Life Insurance from Policybazaar:

Step 1: Visit the official website or app of Policybazaar

Step 2: Enter your login credentials to access your account successfully

Step 3: Go to the active policies section and select the policy you want to pay the life insurance premium for

Step 4: Choose the suitable mode of payment to pay the premium of life insurance policy

If you want to Renew your Existing Life Insurance from Policybazaar:

Step 1: Visit the official website of Policybazaar and click on the ‘Renewal’ option at the top right corner

Step 2: Select the ‘Term Life Renewal’ from the drop-down

Step 3: Click on the insurer of your policy and fill in the policy number and date of birth

Step 4: Follow the instructions mentioned on the screen to successfully pay the life insurance policy premium

If you wish to pay the life insurance premium offline, you can visit the branch of the insurer and pay directly to them.

How Do Insurance Companies Use Life Insurance Premium?

Insurance companies use the premiums they collect to manage risks, meet claim obligations, and maintain financial stability. A portion of these funds is reserved to pay future claims, ensuring that policyholders or their beneficiaries receive timely payouts when needed. Another part is invested in secure avenues such as government bonds, mutual funds, and other approved instruments to generate steady returns and strengthen the insurer’s financial position.
Premiums also help cover the company’s operating costs, including administration, employee salaries, technology, and marketing. By balancing investments, expenses, and claim payouts, insurers aim to remain profitable while safeguarding the long-term interests of their customers. This system allows them to keep promises made to policyholders and continue offering reliable financial protection for years to come.

What Happens If You Stop Paying Your Life Insurance Policy Premiums?  

Below mentioned is a list of all that happens if you stop paying your life insurance premiums:

• Lapse of Coverage: If you stop making regular premium payments, a policy lapse can occur, which would result in the loss of life insurance coverage.

• Grace Period: Most policies offer a grace period during which you can pay overdue your life insurance policy premiums to maintain coverage. The grace period duration varies but is typically around 15 days for monthly payment modes and 30 days for other payment modes.

• Policy Revival: Some policies allow you to revive them by paying overdue premiums with interest. Rules vary depending on the insurer and policy type.

• Reduced Paid-Up Insurance: In some life insurance policies like reduced paid-up in term insurance, if you've paid premiums for a specific time, you may get reduced coverage without further premium payments.

• Surrender or Cancel Policy: Alternatively, you can surrender or cancel your policy, but the amount you receive is usually less than the total premiums paid.

How to Pay Life Insurance Premiums in India?

You can pay your life insurance premiums either online or offline. Online payments are quick and secure—use your debit or credit card, UPI, or net banking through the insurer’s official website. If you prefer paying offline, visit the nearest branch to pay in cash (within permissible limits) or submit a cheque at the local office.

Wrapping It Up!

Life insurance premiums are increasing with time due to several factors. Therefore, it is best to buy a life insurance plan as soon as possible to avoid paying higher premiums in the future. With Policybazaar’s help, you can now choose from amongst 15+ insurers of India and buy the one that best suits your preferences and life goals.

Note: You should also check the benefits of term life insurance if you are planning to purchase the term insurance plan.

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