For most people, Life insurance is a means to protect and provide for their loved ones in the event of their passing. No one wants to die abruptly, but like wills, life insurance could provide for your loved ones if that happens. Think of it as a safeguard measure for your dependents.
However, while the concept of life insurance applies to everyone, the particulars of the Policy can differ from person to person. No two insurance policies are the same, and as such, the benefits accrued from each Policy varies.
Now, let us explore the factors taken into consideration by insurers when deciding premiums for your life insurance policy.
1. Type and amount of the Policy:
Different types of life insurance policies exist. These policies offer different coverage terms, investment options and payout structures. The type of Policy you select will impact the premium you will be required to pay. There are different types of policies to meet your varying needs.
The simplest type of Policy is definitely the term Life Insurance policy. Usually, for a fixed number of years, this insurance policy provides coverage only for a fixed term. For example, it could run until the holder retires. This Policy generally has the least expensive premiums.
Another policy is the whole life or permanent insurance policy, which comes with a guaranteed death benefit and is usually more expensive. According to research, premiums for full life insurance costs six times more than that of the term life policies.
The death benefit is also another deciding factor for life insurance premiums. Usually, premiums would be lower for a $2,000 policy than for a $20,000 policy.
It is no wonder that the applicant’s age is a major determining factor in deciding life insurance premiums. Because insurance is a calculated risk, the simple fact remains that the younger you are, the less expensive your life insurance premiums will be. The rationale is that as a young person, the probability of your death is less, and therefore, your payments to the insurer would be for a much longer time. Experts advise that the best time to buy insurance is when you are still young.
3. Your Health
Another determining factor is the current state of your health. For most insurance companies, a complete health examination is a criterion for signing you on. Your Mental health, the state of your heart and all major organs are checked for underlying conditions.
The better your overall health, the lower your premiums will be. It has been advised to be honest about your health as paying a high premium is smarter than having a death benefit denied due to insurance fraud.
4. Family Medical History
Your family history also comes into play in the underwriting process. Although your gene pool is no fault of yours, it has been established that certain illnesses, for example, cancer, can be hereditary. Insurers would want to be thorough in their examination to determine whether or not you would be prone to certain terminal diseases, therefore driving up your risk
Studies show that, on average, women live longer than men. In fact, 57% of all those 65 and older are women. Insurers tend to classify women as lower risk and therefore are charged lower than the men.
Certain occupations are considered dangerous and as such, classified as high risk. The riskier your job is, the more you would have to pay for health insurance. It is expected that an Airplane pilot would pay more than an accountant.
7. Your Hobbies
Similar to dangerous occupations, certain hobbies are riskier to life insurers. Skydiving is an exhilarating experience, but if that is your favorite pastime, you would have to pay more in life insurance premiums. In fact, the more dangerous your hobby is, the more you would have to pay in insurance premiums.
8. Driving History
To determine the risk level of potential clients, life insurers are very thorough in their examinations. If you hold a spotty record of speeding tickets or recurrent accidents, you would have to pay more.
9. Criminal record
Insurance companies often deny persons with criminal history coverage.
10. Smoking/Tobacco use/Alcohol Consumption
It is a known fact that smoking and excessive alcohol consumption can lead to life-threatening medical conditions. So, if you like to smoke and excessively drink, you are considered high risk by life insurers and are therefore expected to pay more. In some cases, smokers pay double the amount paid by non-smokers.
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