Calculate term life insurance premium

When an insurer calculates the premium for a group term life insurance policy, they put into consideration of certain factors which influence the premium. But before we get to that, what is a premium? Premium is the money the policy buyer pays the insurer to get the policy. It is paid in advance to be able to claim and use the insurance. Insurance premiums can be paid monthly, yearly quarterly or however the parties; policy buyer and insurer decide.

Be it retail individual insurance or group insurance, the two common factors that influence premiums are:

Sum assured

Sum assured is the death benefit given to the family/nominee when an employee dies. How much money should be given is decided mutually by the employer and the insurer. The more the sum assured, the higher will be the premium. 

Group term life insurance policy can cover all employees in one policy but can offer different sum assured to all. Sum assured can be dependent on the employee’s salary drawn or their position in the company.

Age 

Naturally, the older you are, the more like you are prone to illnesses that might be fatal. That means the insurer is more likely to pay the sum assured. For this reason, the premium is generally higher for people of higher age.

When it comes to group term life insurance, the average age of the group is taken into consideration before deciding the premium.

Also Read: How To Calculate Health Insurance Premium?

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Group term life insurance calculation

Claim dump

Claim dump means a report generated by your previous insurer on how many claims worth how much money was raised from the organization. Insurers increase the premium if there are more claims year on year. However, insurer checks your claim status before determining your premium.

Size of the group

The total number of people who have to be covered in the group term life insurance policy is a monumental determinator of the premium. The bigger the size of the employees, the more will be the premium. 

Risk of job

Insurers have their way of measuring what risk employees doing certain jobs encounter. People with jobs that possess less risk have premium costs that are lesser than those with jobs with higher risk. For example, desk jobs vs in-field journalists.

Riders/Add-ons

If employers want to extend the coverage they can buy riders. For example, an accidental death benefit rider gives an additional sum assured upon the decided sum assured if an employee dies from an accident. Likewise, there are many riders including, critical illness rider and disability riders.