What is a life insurance premium and how does it work?

The life insurance premiums you pay on a policy are based on a number of factors. But in general, the younger and healthier you are, the less you’ll pay no matter what type of plan you buy. Even if you’re over 60, final expense and burial insurance for seniors is an affordable option for many families. Some policies, like Lincoln Heritage Funeral Advantage, don’t require a medical exam and only ask a few health questions, making it possible to provide your loved ones financial support to pay for your final expenses even if you’re not in great health.

There are many important things you need to know about your life insurance policy. One of the most important is the life insurance premiums you’ll need to pay. But what exactly is a premium in life insurance?

What Is a Life Insurance Premium?

A life insurance premium is the payment you make on your life insurance policy. It’s important to pay your premiums on time and in full when they’re due. If you miss a payment, your policy will enter a brief grace period or lapse entirely, and your beneficiaries won’t receive the death benefit after you pass away.

How Life Insurance Premiums Work

Most policyholders pay their life insurance premiums monthly, however, you may have the option of paying your premiums quarterly or even annually. Each time you pay your policy premium, you are “buying” coverage until the next premium is due. As long as you pay your premiums on time, your policy’s death benefit is payable to your beneficiary. For example, if you have a brand new $10,000 life insurance policy, pay two months of premium, and then unexpectedly pass away, the full $10,000 benefit is payable to your beneficiary once the claim is approved, even though you only paid two months of premium. 

Who Decides the Insurance Premium?

Life insurance providers typically use a process known as underwriting to set the cost of your life insurance premiums. During this phase of the application process, a specialist known as an underwriter evaluates certain details to decide your insurance premium price. 

How Life Insurance Premiums Are Determined

There are a number of factors that determine the price you’ll pay for your premiums. The underwriter looks at factors like your age, gender, health status, and lifestyle to decide your risk level, or how at risk you are of dying. Those considered high risk, like people with a serious health condition or those over the age of 60, pay higher premiums than low risk people who are young and healthy (e.g. people in their 20s).

Underwriters use medical exams, health questionnaires, and medical and legal records to assess your risk level and set your life insurance premium price. Underwriters look at criteria such as:

  • Age: Older adults pay more than younger adults.
  • Sex: Men usually pay higher life insurance premiums than women.
  • Health conditions: If you have or have had certain illnesses, such as diabetes and heart disease, your premiums will be higher. Factors like high blood pressure and cholesterol that indicate you’re at risk of these types of ailments also play a role in the price of your premiums. Some conditions may disqualify you from the policy you want, like HIV or AIDS.
  • Family history: If you have a family history of serious health conditions, you may be considered high risk.
  • Height and weight: People who are overweight and obese are usually charged higher premiums even if they don’t currently have any weight-related health issues.
  • Alcohol consumption: Individuals who drink a lot of alcohol are a bigger risk to life insurance companies than those who drink infrequently. 
  • Tobacco and nicotine use: Smoking leads to serious health problems, so a history of smoking cigarettes, pipes, or vapes and e-cigarettes are red flags for underwriters.
  • Other lifestyle factors: If you have a dangerous job, your premiums will be higher than for those who don’t work a hazardous occupation.

The type of policy you choose also impacts the price of your life insurance premiums. Term life insurance premiums are usually lower than whole life insurance premiums. This is because term life policies have an expiration date, so unlike whole life, they’re not permanent. 

Do Life Insurance Premiums Change?

The premiums for most types of life insurance policies don’t change as long as your policy remains active, even if your health declines. However, you should verify with your provider if you’ll have level premiums, or rates that stay consistent, before buying a policy.

It’s important to note that if your policy provider learns that you lied about any of the information you provided on your application, they may raise your rates or even cancel your policy. It’s important to be completely honest when answering questions during any health exams or questionnaires to ensure your loved ones receive your death benefit after you die.

In some cases, you may be able to request your premiums be lowered based on changes in your health or your lifestyle. For example, if you lose a significant amount of weight and are no longer obese, you may be able to take another health exam and have your premiums reduced. Quitting smoking or leaving a dangerous job may also lower your life insurance premiums.

How to Get the Lowest Life Insurance Premiums

There are a few things you can do to get the lowest life insurance premiums. Applying for a policy when you’re young and in good health will give you a lower rate than if you have a chronic health condition or are an older adult. Likewise, living a healthy lifestyle will also save you money, so take action to improve your wellness before applying.

Buying a policy that has only the coverage you need will also help keep your premiums low. For example, people with families who depend on their income usually need larger policies than retired individuals who only need funds to pay their funeral costs or other small final expenses.


Is a premium the same as a quote?

A life insurance premium is not the same as a life insurance quote. Quotes are given by providers to give you an idea of what you’ll pay on your premiums based on answers to a few questions about your health, age, and lifestyle. But a quote is only an educated guess. The premiums you’ll actually pay will be determined by an underwriter as part of your application process.

What factors determine the price of life insurance premiums?

Underwriters look at a variety of factors to calculate your life insurance premiums. These include your:

  • Age
  • Gender
  • Current and past health conditions
  • Alcohol consumption
  • Tobacco, nicotine, and drug use
  • Risky lifestyle behavior
  • Line of work

Does an insurance premium always stay the same?

Life insurance premiums stay the same for the life of the policy in most cases. It’s smart to check with your insurance company that your rate won’t change before you buy your policy.

Why is it important to pay your life insurance premiums?

It’s important to make sure you pay your life insurance premiums. If you don’t, your policy may be cancelled. In some cases, a single missed payment may cause your policy to lapse, which would leave your loved ones without financial support to help pay for your final expenses, including your funeral costs.

What does the life insurance company do with the insurance premiums?

The life insurance premiums you pay for your policy are used in a few ways. For one, these funds are paid to beneficiaries on the claims they make when their loved one passes away. Of course, they are also the company’s income and pay for daily operations.

Are life insurance premiums tax deductible?

In general, life insurance premiums are not tax deductible. However, the death benefit paid to your loved ones after you pass away is usually tax-free, meaning your beneficiaries won’t be taxed on the funds they received.

What is an actuary?

Like the underwriter, the actuary assesses risk to an insurance company, but on a broader scale. The actuary looks at the risk a certain group of people poses to an insurance company, like individuals with heart disease, people who smoke, and people over the age of 65. They use their findings to determine what life insurance premiums people who fit certain criteria should be charged. This information is then used by the underwriter to evaluate applicants on an individual level and determine their premiums.