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# How life insurance premium is calculated?

MORTALITY TABLE: Mortality table shows the probability of living or dying at any given age. With this table insurance company can assume probability of death for any particular age. Insurance companies construct these tables based on census data which includes birth and death rates and on their own experience or based on industry experience. Below is the sample of Mortality Table. Rate of below mortality is per 1000 people.
Now you may ask by reviewing the above sample mortality table that, how the insurance premium is fixed for the whole tenure of policy when in Mortality Table for each age group probability of death is different. What they will do is, during the initial period of your Insurance they will build up the reserve as probability of loosing life is low and use that amount in later years.From the above table I will show you the simple way how premium can be calculated.  Suppose insurance company need to issue 1,00,000 polices for the age group of 10 yr old female. Then from the above table you can notice that for each 1,000 people of the age group of 10 yr female, probability of loosing life is 0.70. So for 1,00,000 people probability of  loosing life is 70 (1,00,000*0.70/1,000). Suppose all 1,00,000 policies are insured for Sum Assured of 1,00,000 then they need to pay for death claim of 70 people is Rs. 70,00,000 (1,00,000*70). What they will do is, they will collect this 70,00,000 from the 1,00,000 insured persons. So pure premium will be Rs.70 for those 1,00,000 insured female lives of age group 10.

MORBIDITY TABLE: It is the table which shows the probability of male or female life either contracting a critical illness or disability at any given age.

So from using above two tables insurers usually construct the premium for your life insurance. Other things that may affect your premium are rider you opt during purchasing policies and underwirter’s decision.

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1. Is the premium calculation algorithm same for all the products or it differs from insurer to insurer.

• Thank you Basavraj. This is indeed a great info. Just one more thing, Please let me know if you know of any excel rater to calculate different life insurance premiums.

• Prashant-Sadly they not share such vital information to public.

Much appreciated.

Thanks, Vinod

3. I have JEEVAN ANAND (WITH PROFITS) WITH ACCIDENT BENEFITS (149) POLICY. I purchased the same on 2008. Sum assured is Rs. 500000 and quarterly premium is 7813.
My doubt is that,
If the policy holder dies during the premium paying term (Normal Death)- Sum Assured +Bonus accrued will be payable to the nominee, correct?
If the policy holder dies during the premium paying term (Accident Death)- then how is it calculated
If the policy holder dies after the premium paying term (Normal Death) before the age of 70 years- then how is it calculated?
If the policy holder dies after the premium paying term (Accident Death) before the age of 70 years- then how is it calculated?
If the policy holder dies after the age of 70 years(Normal Death)- then how is it calculated?
If the policy holder dies after the age of 70 years(Accident Death)- then how is it calculated?
Thanks Vinod.

• Vinod-Yes, your understanding about normal death is correct. In case of accidental death double of sum assured (if opted accidental benefit rider)+accrued bonus will be payable. If policy holder dies after policy premium paying term but before 70 years of age then sum assured (in case of normal death) or double of sum assured (in case of accidental death) will be payable. If policy holder dies after 70 years of age for whatever the cause of death, nominee will receive the sum assured.