Term Insurance Basics: What It Is and How to Calculate Insurance Premium

A lot of people hear the words life insurance and immediately feel like it’s something to deal with later. When they’re older. When they earn more. When life settles down a bit.

But life doesn’t really wait for any of that.

If someone depends on your income, even a little bit, then this is something worth understanding now. Not later.

This guide covers the basics in simple language. No complicated terms. No confusing numbers. Just what you actually need to know.

What Does Life Insurance Actually Do

Think about what happens to your family if something happens to you tomorrow.

Your salary stops. But the rent doesn’t. The school fees don’t. The grocery bills don’t. The home loan EMI doesn’t. Everything continues. Just without your income.

That’s exactly the gap life insurance fills. You pay a small amount regularly. In return, if you pass away, your family receives a large sum of money. That money keeps them going financially when you’re not around to provide.

Simple as that.

What Is a Premium and How to Calculate Insurance Premium

Before anything else, let’s understand what a premium is.

A premium is the amount you pay every year, or every month, to keep your insurance active. Think of it as a small regular payment that keeps a big protection in place for your family.

Now, how to calculate insurance premium? It’s not random. Several things about you personally go into it.

Your age: This is the biggest factor. Younger people pay less. Much less. A 25-year-old will pay a fraction of what a 42-year-old pays for the same cover. Every year you wait, the cost goes up.
Your health: Do you have diabetes, thyroid, or high blood pressure? These increase your premium. Your family’s health history also plays a role.
Smoking habits: Smokers pay significantly more. In many cases, almost double. Chewing tobacco also counts here.
Cover amount: The larger the payout you want for your family, the higher your premium will be.
How many years you want the cover: The longer the period, the higher the premium.
Your job: Working in a physically risky job like mining or construction can push the premium higher.
Gender: Women typically pay slightly less than men of the same age because they generally live longer.

Once you understand all of this, the number you get on any insurance calculator starts making sense.

What Is Term Insurance

Now, let’s talk about term insurance specifically. It is the simplest and most affordable type of life insurance available.

Here is how it works. You pick a fixed number of years for your cover. Let’s say 30 years. You pay your premium for those 30 years. If you pass away during that period, your family receives the full cover amount. That money is theirs to use however they need.

What if you’re perfectly fine at the end of those 30 years? The policy just closed. No money comes back. There are no returns, no savings, nothing of that sort.

This is exactly why term insurance is so affordable. It is pure protection and nothing else. You are not paying for any investment. Just a financial safety net for the people who depend on you.

How to Figure Out How Much Cover You Need

This is where most people get confused. They don’t know what number to put in.

Start with this one question. If your income stopped tomorrow, how much money would your family need to manage their life comfortably?

Write down:

Monthly household expenses
Any loans you are paying right now, such as a home loan, a car loan, or a personal loan
Your children’s school and college costs for the next many years
Any other expense that your family depends on your income for

Add it all up. That total is a good starting point for your cover amount. A simple guideline most advisors suggest is to go with coverage that is at least 10 times your yearly income.

Using a Free Online Calculator

You don’t need to do any math yourself. Every insurance website has a free premium calculator. Open one, enter your basic details, and your estimated premium shows up in under a minute.

Try a few combinations. Increase the cover amount and see how the premium changes. Extend the policy by five years and check again. This takes ten minutes and gives you much better clarity than reading any pamphlet would.

Once you have a number, compare it across at least three or four different insurers. The same cover can come at different prices. Also, check each company’s claim settlement ratio. That number tells you out of every 100 claims they received, how many they actually paid. Always go with a company that has a high ratio.

Two Things to Remember Before You Buy

Buy as early as you can. The premium you lock in at 26 stays fixed through the entire policy in most cases. Waiting costs more money for the exact same protection.

And always be honest on your application. Never hide a health condition to save on premiums. If it comes up during a claim, the insurer can reject the payout. Your family suffers for that. It is never worth it.