There are millions of individuals who have a life insurance policy but not many know how their premiums are calculated. Since this type of insurance is crucial to protecting your family and loved ones, most prefer to have an ongoing policy. But often times, people overpay for insurance and do not understand why their rates are so high compared to others. Learning how premiums are calculated can help you make changes to reduce the amount you have to pay.
Factors Used to Calculate Life Insurance Premiums
- Age and gender of applicant
- Existing medical conditions
- Lifestyle preferences
- Current investments
- Level of expenses
Age and Gender
The age and gender of the applicant will make a big difference in the amount of the premium for a life insurance policy. Generally, women live longer so they are more likely to get a lower rate than when men apply. Also, a majority of life insurance adjusters will take your age into account before quoting a price. If the applicant is young and in good health, the premium will be much lower because their life expectancy is much higher than an elderly person. These two factors cannot be controlled by the person applying but may explain why premiums are so high for some people.
Medical History and Condition
Among other things, life insurance companies will definitely ask for your medical record so they can review your history. Any previous records of major illnesses or indication thereof can cause your rates to be extremely high. This means that even if you are younger than most applicants, having a complicated medical condition will undoubtedly bring your premium to a much higher amount.
Lifestyle Habits and Interests
While many people believe that premium calculations should only include health and age factors, the habits and interests of your lifestyle also come into play. For example, if you are a frequent traveler and engage in many dangerous activities like sky diving or rock climbing, the price you pay for life insurance will be more than the average person. Thrill-seekers are generally seen as a higher risk because of the natural dangers involved with the activities you do.
Potentially Dangerous Choices
Not many people know that potentially dangerous choices like smoking and drinking alcohol are also factors that can bring up your life insurance premium. Insurance companies understand the health risks involved with nicotine and alcohol consumption so they add a percentage to their calculations. In other instances, life insurance providers may even ask for a blood test to confirm if you are a current drug user.
What Can Be Done to Get a Lower Life Insurance Premium?
Now that you know the main factors used to calculate life insurance premiums, you can try to make small changes to reduce that amount. Quitting smoking and excessive drinking can make a major difference in your premium. Maintaining good overall health is also an effective way to keep life insurance costs low. Be sure to also go online and compare rates from different companies before finalizing your decision.