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How is life insurance priced

Life Insurance1

Life insurance premiums are based on many factors, but mainly on how long an insurance company believes a person will live. If evidence gathered during the underwriting process leads them to believe you will die sooner than later, they will charge more because it is a higher risk for the insurance company. Here are some of the factors that determine how life insurance is priced.

Age: The younger you are the less likely you are to pass away, so age is the primary factor in insurance pricing. It’s also why we recommend buying as much coverage as can be afforded at a young age because it’s relatively inexpensive.

Gender: Women generally pay less because statistically they live longer than men.

Health History: Any history of chronic disease or health problems can make you a higher risk for life insurance, resulting in being rated.

Current Health: Most companies gather medical information from the applicant and medical professionals to check for things that may indicate future health problems. This may mean a blood pressure check and submitting urine and blood samples.

Weight and Body Mass Index: Overweight people usually pay more because it is known to cause health problems that might result in earlier death. Obesity usually results in a denial of coverage.

High risk occupations or recreation activities: Dangerous occupations or activities may result in higher premiums or even denial of coverage because of the increased risk of accidental death. If you work on a mine site or in a country where there is armed conflict, participate in motorized racing, scuba diving, fly private planes, etc, insurance companies have good reason to see your job or hobby as risky.

Smoking: Smokers pay much higher premiums. Most insurance companies allow those who quit to apply for lower rates after a period of time, which is another good reasons to quit.

Drinking: Insurance companies want to know about drinking habits. Heavy alcohol consumption and the associated lifestyle can have a major impact on life expectancy and usually entail higher premiums or can even be declined.

Family History: Those with families with a history of heart disease or cancer may find themselves paying more because they are at a greater risk of being diagnosed with the same.

The Type of Policy: Longer term policies increase costs because the risk of dying during the policy term is greater. Larger coverage amounts also cost more.

Lifestyle and health are the two main risks that insurance companies assess. Health and lifestyle costs are generally passed on two ways, by risk classes and ratings. Most companies offer preferred classes for clients with good health, who are fit and have no family health issues prior to age 65. A rating of 150% means the premium is 1.5 times more than standard.

Talk to a licensed life professional to determine the suitability for you needs and how much your coverage will cost.   Madhavi Acharya-Tom Yew has an article comparing term life and mortgage (creditor)  insurance  that is worth the read when deciding on the best insurance for your needs.

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