How is Term Insurance Premium Calculated?

Amongst the various mind-boggling questions that life throws at us, viz; how do I secure my family? How do I find my child’s education? Should I buy a Life Insurance cover? The question of ‘How is a Term insurance premium calculated reigns supreme.

Read one to go through the nitty-gritties of a term insurance premium and how it is calculated.  

The purpose of buying life insurance is to provide life cover to the policyholder and a financial security to his family. Where term insurance is concerned, it may be defined as a type of life insurance which provides coverage for a certain period of time or years. If the insured person dies over the policy tenure, a death benefit (or sum assured) is paid out. No payout is made if the insured survives the tenure.

An individual can take life insurance, either by opting for a pure life cover, known as a Term Insurance, or by taking a live cover with a savings component built-in, popularly known as Endowment Insurance.

The former makes it easier to secure one’s family and dependants financially by offering a large sum insurance cover for a relatively low premium payment, and are available for persons from ages 18 to 60 years. Premium payments can be made at regular intervals or at one go, depending upon one’s policy.

A term plan helps in facilitating the family in case the sole breadwinner meets an untimely death. The term insurance payout can either be taken as a monthly instalment or as a lump sum amount, depending on the nature of the policy. It can also be accelerated through various riders such as accidental death rider, permanent and partial disability rider, critical illness rider, waiver of premium rider etc.

Why is a Term Insurance Needed?

A term plan provides a pure life cover and hence offers a no saving component. It is a basic plan which makes life insurance more affordable in general. With the passage of time, the premium on the same insured sum increases. A premium in the term plan varies from one company to another, but the premiums for term insurance are the lowest among all life insurance policies since there is no investment component and the entire premium goes for covering the risk.

If the policyholder expires during the insured term, the death benefit is paid to the nominee. There is a zero survival or maturity benefit once the policy term expires. There may be some plans like the return of premium plan (TROP) that offer to return the premiums paid by the policy holder if he/she survives.

Is Term Insurance Affordable?

Yes, term insurance is most affordable as:

a) It is a pure insurance plan with zero investment component

b) The insurance company pays the nominee only in case where the life assured dies during policy period.

c) The online purchase of the term insurance plan allows saving up a large sum of money on administration and other charges.

d) For a cover 20 times of one’s income, an individual can pay an annual sum comprising of 2-3% of his annual income.

Term Insurance Premium Calculator

A term plan calculator is designed to help calculate the required cover in order to obtain the desired sum assured. This calculator helps in calculating the exact premium for one’s desired life cover, and is available on the website of all insurance companies. It comes handy for people who are interested in buying a term insurance plan. In a term plan, life cover is the most crucial asset as it decides the amount to be received by the nominee in the event of the insured death.

Few factors mentioned below help in calculating a term insurance premium:

a) Age of the insured: The age is a necessary factor to be considered while calculating term insurance as lifestyle diseases create an impact on an individual’s age.

b) Personal habits: If the person in question is addicted to alcohol, drugs or smoking, the likelihood of him paying a large premium amount is huge. There are policy denials as well, and non-smokers and people sans such habits tend to pay approximately 30%-70% lower premiums than the ones who do possess such habits.

c) Tenure of the insurance policy: The term insurance premium calculator is adversely affected if one buys a term plan covering one’s retirement age as well as till one pays off all of the liabilities.

d) Health records: One is bound to enjoy lower premiums if one does not have a lineage bearing Cancer, Alzheimer’s etc. 

e) Coverage/Sum assured: It is advised to opt for a coverage as per one’s requirement. Higher the sum assured, higher would be the insurance premium.

Benefits of a Term Plan Calculator

a) Time-saving and hassle free

The beauty of using an online mode is that it is fast and cost-efficient, and free of unnecessary paperwork and documentation. A quote is provided to you within minutes and one can decide whether to go for it or not.

b) Myriad options available in one place

With insurance companies offering more than one term plan suiting the needs of their respective customers, there are undoubtedly plenty of options to choose from.

Using the term plan calculator you can compare the various plan features and premiums and select a suitable plan. In an online insurance comparison website like, you can use the term plan calculator even for comparing premiums and plans of various insurance companies in one place.

c) Cost-effective

Post comparison of the premiums using the term plan calculator, one can also buy term plan online. It is cheaper and the premiums are lesser due to the absence of an intermediary.

How to Use a Term Plan Calculator?

a) Firstly, one would enter personal details like Name, Date of Birth, Gender, Income, Marital status and Family Structure etc 

b) The next step could be answering questions on one’s personal and family health. Apart from this, one may be asked to enter one’s PAN, Aadhaar and bank details. 

c) The third step would be entering the desired sum assured, period of life cover and the premium paying mode, whether monthly, quarterly, half yearly and annually.

d) Once you know the premium, you can buy the term plan using your net-banking facility or debit card. 


The above is just an example of the steps involved but the same may vary from one company to another.


Benefits of Term Insurance Plan

a) Low premium

Post a well-thought out usage of the term plan calculator, one can get the highest sum assured or life cover in lieu of a low premium.

b) Lower tenure – optional 

Term Plans can be taken for shorter tenure also. For example – you have taken a home loan of Rs.75 Lakhs for 15 years. In this case, one can take an additional life cover through a term plan equal to the amount of home loan. This ensures that your family could repay the loan and retain the house in case of your sudden demise.

c) Longer tenure

You can take a term plan up to an age of 75 years. With growing life expectancy rate in India, term plans help you in protecting the financial future of your family even when you are quite aged.

d) Income Tax Benefits 

A tax rebate on the premiums paid for the term plan, up to Rs.1.5 lakh in a FY, can be availed under Section 80C of the Income Tax Act 1961. The maturity benefits paid (in case of term plans with return of premium option) and also the claim amount (if any, received by your nominee) is also tax free under Section 10 (10D) of the income Tax Act 1961.

Therefore, a Term Plan is an efficient tool to protect the financial future of your family. Using the term plan calculator, one can compare and buy the right term plan on a low premium rate for a long period of time.

Related Article: Compare different policies with the help of term plan premium calculator

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