Glossary

Premium

The amount a policy owner pays an insurer, monthly, quarterly, yearly or in one sum, to keep life insurance coverage in force.

Also called: insurance premium, life insurance premium

A premium is the price of life insurance coverage. You pay it on a schedule set by the contract (annually, semiannually, quarterly or monthly) or, for some permanent policies, as a single lump sum. If a premium goes unpaid past the grace period, the policy can lapse.

Insurers build premiums from three main pieces: the expected cost of claims, based on mortality tables and the insured's age, sex, health and rate class; expenses such as commissions, underwriting and state premium taxes; and a margin for profit and risk, offset by expected investment earnings. Term premiums are usually level for the term and then rise sharply. Hypothetically, a policy priced at $600 a year might cost $52 a month on a monthly plan, or $624 a year, because paying more often carries a modal charge.

Premium structures differ by product: whole life has fixed premiums, universal life has flexible ones, and some policies charge premiums only for a limited number of years. When comparing prices, compare the same face amount, term length and rate class, and check whether the premium is guaranteed. See how life insurance premiums are calculated and paying life insurance monthly vs annually.

Last reviewed October 4, 2026

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Related terms

Modal premium The amount due per installment when you pay monthly, quarterly or semiannually instead of yearly, which usually costs more in total over a year. Level premium A premium that stays the same each year for a set period or for life, with early overpayments offsetting the rising cost of coverage at older ages. Grace period The window after a missed premium due date, usually 30 or 31 days, when life insurance stays in force and the overdue premium can still be paid. Rate class The underwriting category, such as preferred plus, standard or substandard, that sets the price an insurer charges for a given age and coverage. Lapse The end of coverage because a premium went unpaid past the grace period or, in universal life, because cash value could no longer cover the charges. Planned premium The premium amount and frequency a universal life owner chooses to pay, which can differ from the minimum needed to keep the policy in force.

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Related tools

Return of premium term calculator Finds the yearly return you earn on the extra premium of a return-of-premium term policy, and compares it with investing that money yourself.