Setting of life insurance policy premiums can be a complicated process which involves multiple factors. Since no two individuals are the same, they are bound to have differing financial and life situations. As a result, their policy premiums will also differ, based on a variety of factors. If you are looking to gain a better understanding of the life insurance process, starting with the premium setting process, also known as the underwriting process, is a good place to start. Here is a brief list of some of the most important factors which are taken into consideration by insurers when they decide premiums for your life insurance policy.
Your age is one of the biggest determinants of your insurance plan premiums. Experts suggest that the best time to buy insurance is while you are young. This is because, younger age is associated with lesser health-related risks, hence lowering the risk associated with the applicant.
The applicant’s medical state at the time of applying for the policy is also of great importance in the underwriting process. Insurers will typically have the applicant undergo a medical test to determine their current medical state. If the person has any critical or serious illness or condition, that will result in higher premiums, or may even result in a rejection of the application. Healthier individuals may get the benefit of lowered premiums.
Your past medical record is also of significance in the underwriting process, and can affect premium rates. If an individual has had an adverse medical history plagued by recurring illnesses or a critical disease, they may be charged higher premiums, given the higher risk. Someone who has had a relatively smooth medical history, is at a greater benefit of availing lower premiums.
Certain occupations are considered riskier than others, which in turn, drives up the risk factor for the insurer. For instance, if you are a fisherman, miner, adventure sports instructor, etc., you may even be denied cover by an insurer due to the high degree of risk involved. Occupations which are sedentary in nature like desk jobs, involve much lower risk, hence give the applicant the benefit of availing lower premiums.
The health hazards of smoking/alcohol consumption are not unknown and can lead to complicated, life-threatening medical problems. Therefore, insurers charge higher premiums from applicants who are smokers or heavy alcohol consumers. On an average, smokers may be quoted life insurance premium rates that are almost double of what non-smokers are quoted. However, if you have quit, you can contest for a revision of the underwriting process and try for lower premiums.
That women live longer than men, is not unknown either. As a result, insurers will typically offer lower premium rates to women, as compared to men.
Are you someone who loves indulging in adventure sports like paragliding, scuba diving, or bungee-jumping? Because if you do, then your chances of getting life insurance may be low to nil, as insurers associate these activities with high risk. Insurers who do happen to provide cover, may charge high premiums.
Your driving history also plays a major role in the underwriting process. If you hold a record of being a safe driver, chances are that you may be offered some discount on your life plan premiums. However, if you have a driving record which is full of parking tickets, or speeding tickets, that will only drive up your premiums.
This is a no-brainer. Those who have a criminal record, or are on probation, will flat out be denied cover by an insurance company.
The longer the duration of your life insurance policy, the higher will be your total outflow of premiums. This is simply because, the shorter the term, the lower will be the risk of death. It is more likely for one to die during a 30-year policy term, as compared to a 10-year policy term.
When it comes to offering cover, insurers want to be thorough in terms of the risk they have to cover. Therefore, your family’s medical history also comes into play in the underwriting process. If anyone in your family has suffered or is suffering from a serious illness, then you are automatically at risk of contracting it, therefore driving up your risk.