A premium is the payment you make to your life insurance company to keep your policy active and in force. If you stop paying premiums and the policy lapses, your coverage ends and your beneficiaries would receive nothing.
How premiums are determined
Life insurance premiums are based on a combination of factors that collectively represent the insurer’s assessment of risk:
- Age: Younger applicants generally pay lower premiums because they have longer life expectancy
- Health: Medical history, current health conditions, medications, height/weight, and lifestyle factors all affect pricing
- Coverage amount: A $1,000,000 death benefit costs more than a $250,000 benefit
- Policy type: Term life premiums are typically lower than permanent life premiums for the same death benefit
- Term length: A 30-year term costs more than a 10-year term
- Gender: In many states, women pay lower premiums than men due to statistically longer life expectancy
- Tobacco use: Smokers pay significantly more than non-smokers
- Occupation and hobbies: High-risk occupations or activities can increase premiums
Level vs. increasing premiums
Most term life policies have level premiums — the amount you pay stays the same throughout the term. This predictability makes budgeting easier.
Some policies have increasing premiums that rise over time, often annually. These may start lower but become more expensive as you age.
Annual vs. monthly payments
Most insurers offer both monthly and annual payment options. Annual payments are often slightly less expensive overall than paying monthly, because monthly billing typically includes a small administrative fee.
What happens if you miss a payment?
Most policies include a grace period — typically 30 days — during which you can pay a late premium without losing coverage. If you miss the payment and the grace period passes, the policy may lapse. Some permanent life insurance policies can use accumulated cash value to continue paying premiums for a period if you stop making payments.
Policy terms and provisions vary by insurer and policy type. This is educational information only.