How is my insurance premium calculated?

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October 2016
55% of people found this answer helpful

What a great question for Investopedia!

Lets assume you are talking about premium pricing for, say, a 20 year level premium term life insurance. The company's goal is to make money on the insurance policy and avoid unanticipated losses. Insurance companies employed highly educated and experienced actuaries to try and predict what their future claims experience will be.

So what drives the premium calculation? Gender, age, vocation, recreation (risk-related such as skydiving or rock climbing), family mortality experience, and a host of personal health data factors are run through the actuarial model to create a profitable pricing structure. Ideally for the insurance company, every insured person would outlive the term or simply let their policy lapse prior to any claim. I hope that helps. Good luck! 

June 2009
December 2016