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What is a life insurance premium?

Jan 21, 2021 4 Minute Read

When you shop for life insurance, one phrase that’s likely to come up is “life insurance premium.” But what is the premium for life insurance, and what does it have to do with your coverage?

In life insurance-speak, “premium” is just another word for payment. This is what you’ll pay to keep your coverage active. That’s why it’s important to understand the life insurance premium definition, so you can find a plan with payments that work for your family now while protecting their financial future.

What is a life insurance premium?

When you buy a life insurance policy, your insurance company will charge you a regular premium to keep your policy active. It’s typically a monthly payment, but some plans have options for quarterly or yearly premiums.

In exchange for your premiums, your insurer provides a payout called a death benefit to your beneficiary if you die while you own the policy. If you buy permanent life insurance, your policy will also have a cash value component that grows over time.

It’s important to keep up with your premiums, since not paying them can cause the policy to lapse. If that happens, your beneficiary won’t receive the death benefit.

With a few exceptions, your premium payment stays the same throughout the entire policy. That can make it easier to work it into your monthly budget. Premiums are generally not tax-deductible unless you bought the policy for business reasons, but the payout your loved ones will receive if you die is tax-free.

How do insurance companies calculate premiums?

Your premium for life insurance depends on a few factors, including your health, age, and lifestyle. Different types of policies also have different costs. For example, term life insurance is more affordable than permanent life insurance.

Each insurance company has its own formula for calculating your price, which is why your price might be different with one provider vs. another. Most life insurance companies will provide you with an initial quote for life insurance based on a few personal details. Once you complete your full application, your insurance company will give you a final premium cost. The premium may be higher or lower than the original quote based on the information you shared during the application, and information from public databases like Motor Vehicle Records (MVR).

The premium an insurance company offers you generally isn’t negotiable, but it can help to compare prices from multiple companies to see which plans fit your needs best. In general, life insurance costs less than most people think. That said, these tips can help you find a life insurance premium that fits your budget:

  • Consider a term policy. Term life insurance covers you for a specific length of time, typically 10 to 30 years, and tends to work well for most families.
  • Figure out your ideal coverage number. Try our term life calculator to make sure you have enough protection for your family – and avoid overpaying for too much coverage.
  • Buy earlier rather than later. Life insurance premiums increase each year as you age, so buy as early as possible to save money on a policy.
  • Shop around for life insurance quotes. eFinancial works with top-rated life insurance companies to give you the best life insurance options for your budget.

Still have questions?

We’re here to help. Call us or start your quote online today.


At eFinancial, our goal is to make life insurance simple, affordable, and understandable for everyday families. This content is intended for educational purposes only. Each post is carefully fact-checked, reviewed and updated regularly to ensure the information is as relevant as possible.