Friday, July 01, 2011

How Do Insurance Companies Determine Your Life Insurance Premium?

Understanding how life insurance companies determine their premium rates can help you get better life insurance rates!
Life insurance companies work with actuaries and underwriters to calculate the risk of insuring your life. There are several factors they consider that influence these rates. You may find that some of these factors are modifiable in your life. In order to fall into a premium classification that offers better rates, all you have to do is work on those modifiable factors.


Life Insurance Rates

Life insurance is a business, and in order for any business to remain healthy, there is a reasonable amount of profit that must be made. Life insurance companies profit from probabilities. A major factor they consider is your probability of dying soon. Looking at your personal profile, life insurance underwriters determine the probable age you will die. If you’re likely to die soon, they will charge you a higher premium rate. Conversely, if you are likely to live a long life, your premium rates will be much lower. To make it simple, life insurance companies will divide people into at least four different groups based on their personal profile and consequent risk of death. In descending order of preference, these are usually referred to as:

  • Best Preferred
  • Preferred
  • Standard
  • Smokers

Factors that determine your life insurance rates

Age
Mortality rates are tools that underwriters use to determine the risk of insuring your life. For this reason, those who are young usually get the best life insurance rates. The older you are, the more likely you are to have health concerns. The premiums for a 20-year old will be significantly higher than premiums for a 65-year old, even in good health. Buy life insurance when you are young and lock those rates in for a long-term period!

Health
The second most important factor that determines your premiums is your health. Those who are young, and in top health, will be offered the Best Preferred rates. By purchasing a level-term life insurance policy at an early age you can lock in those rates for the entire term period.

Most life insurance companies require you to undergo a medical examination that is conducted by a company-appointed medical officer. Being slightly overweight or having a higher than normal blood pressure can knock you down to the next premium rate class. Other factors that are considered are high cholesterol counts, diabetes, any medication taken regularly, and mental health. A company may also look at your family health history to check whether there are any genetic dispositions. Health may not always be an area we can control, but following a good diet, incorporating a daily exercise regime and practicing weight management may help!

Your Occupation
Life insurance companies check out the kind of job you do and your workplace environment. If your job exposes you to dangerous health risks, requires extensive travel, or is considered a high-stress job, be prepared for higher premium rates. A safer job would attract low cost life insurance rates.

Your Hobbies
You may not think it matters, but the type of hobbies you engage in may be considered a risk to your life. Some of these hobbies may include skiing, bungee jumping, rock climbing, scuba diving, car racing, or any other such extreme sports. Engaging in one or more of these activities on a regular basis may cost you in terms of premiums that you will need to pay.

Smoking
If you are a tobacco user, you will qualify for smokers’ rates. Tobacco, in any form, is dangerous to health, and will substantially increase your premium rates by 20 to 30 percent. To give you an incentive to quit smoking, some companies will offer you better rates if you can prove you have quit smoking for at least a year.

Your Credit Card Score
What does your credit score have to with your life insurance rates? The way you handle your money may give life insurance companies a little more insight on your personality traits. If you’re rash with your spending, you may be applying same principle to your health.


It must be noted that if your risk of death is extremely high, a life insurance company holds the right to deny you any coverage. However, you need to remember that just because one life insurance company gives you standard rates, this does not mean that another life insurance company will not hike you up to preferred class. While life insurance companies generally use the same criteria to determine life insurance rates, they may specialize in some areas in order to give them a competitive edge over other companies. For instance, most life insurance companies will charge you higher premiums if your cholesterol is above normal. But, there are some life insurance companies that will combine this fact with other factors in your life, such as your weight, age, job and lifestyle. If all other factors are favorable, you may be eligible for better rates these life insurance companies.

In many cases, it is possible to obtain better premium rates by kicking the smoking habit, losing a few pounds, or even changing jobs or hobbies!


Compare Life Insurance Rates

Online life insurance quote providers have made it easier than ever to compare life insurance rates of top-rated life insurance companies all in one go! Their huge database instantly locates life insurance carriers that specialize in the weak factors of your personal profile, making it easy for you to obtain the best life insurance quote that suits your personal needs!


This is a guest post by Denise Mancini.

3 Comments:

ChampDog said...

The premium for smoker is difference by 20% t0 30%? That is a lot. I always thought that the difference is not a lot.

Michael Tsen said...

some load on smoker, some others load even more on 2nd hand smoker, it all depends on which actuarial you hire :)

ChampDog said...

How can they tell 2nd-hand smoker?

Is it based on whether any smoker in your direct family member or the nature of your work (e.g. work in the night club)?


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