Life is unpredictable and it is wise to plan ahead. Getting a life insurance cover is important to protect your loved ones if something happens to you. This is all the more crucial if your family depends on you financially. Though the step can make you considerably stress-free about the future, buying the right policy can be tricky. Besides ensuring that it matches your requirements and situation, you also need to consider the premium value of the policy. After all, you should be able to pay it comfortably.
The insurance premium is a major and recurring expense that has a far-reaching impact on your annual expenditure. Your motive, therefore, should be to get optimal coverage by paying the minimum amount. Do you know what determines the premium on your life insurance policy? There are certain factors that insurance providers use for calculating the premium they would charge from you. Knowing these factors would help if you want to calculate and compare policies at your end. Let us list them for you.
- Age
The most important factor that determines the life insurance premium is the age of the insured. The younger you are, the lower is the premium value. Obviously, this is because the risk of death is lesser for young people. Additionally, the insurer would get premium year after year for a longer time span. For this reason, they would be happy to quote a smaller premium amount. As age increases, you need to pay more to get a good cover. So it is a smart move to know life insurance well and get yourself insured when you are young. While you get a cover, the cost you need to incur is significantly lower.
- Gender
Gender is another significant parameter that impacts the value of your life insurance premium. Providers use statistical models to estimate the life expectancy of people with specific profiles. Studies indicate that females have a longer life expectancy as compared to males. On average, women live approximately five years longer than men. This means that they will pay the premium longer to the company. If you are a woman, you will probably have to pay less to get the same cover value with your policy.
- Health history
Providers will access your health records before quoting your premium amount. Some may also ask you to take a medical exam as a part of the process. The reason is obvious because your health status determines the likelihood of living longer. People with a history of health conditions, particularly serious ones, will have to pay more. While checking your health status, insurers will also check vital stats such as your weight, blood pressure and cholesterol levels. Even if you are healthy at present, they need to know these stats to assess future health issues.
- Family health history
Believe it or not, your family health history is as important for insurers as your personal health history is! Ty Stewart of SimpleLifeInsure.com explains that when applying for life insurance, companies will look at not only your health, but the health of your parents and siblings as well. This is because family history indicates your chances of falling prey to hereditary diseases in the future. Even if you are in great shape today, you may suffer subsequently because your parents or siblings have specific diseases. So you may have to pay a higher premium in this case.
- Smoking
Another important factor that affects the amount of insurance premium is the smoking status of the person. This is because of the major health risks associated with smoking. People who smoke regularly are at high risk of falling prey to conditions such as cancer and cardiovascular disease. If you smoke, the premium on your policy will obviously be higher. Quitting before you take the policy is a great idea if you want to lower the price of getting insured. A lower premium is, therefore, an incentive to kick the habit.
- Occupation
Before an insurer gives you a quote, they ask about your occupation too. Besides your health and lifestyle, your occupation is another main concern for the insurers. If you do a risky job or are exposed to toxic work conditions, you have fewer chances to live longer. Dangerous duties elevate the risk of accidental death. On the other hand, constant exposure to workplace toxins lowers your life expectancy. This is the reason why a pilot or a chemical plant worker will have to pay more than someone with an office job.
- Hobbies and lifestyle
Just as a risky occupation and unhealthy habits reduce your life expectancy, your hobbies and lifestyle do the same. Of course, people who have dangerous hobbies and lifestyle are at a higher risk of accidental death. If you indulge in dangerous activities such as car racing or skydiving, you will have to pay more to get a life cover. Insurers want to know about indulgence in high-risk hobbies before quoting the premium amount.
- Driving record
It may be a surprise, but several insurers have a good look at your driving record before giving you a quote. Rash driving and traffic tickets can get you in a fix when it comes to the premium amounts. And there is no use hiding the facts because the provider can easily access your records from the traffic department. Remember that your records for the last 3 to 5 years are important to them. A lower premium for your life insurance policy gives you another good reason to practice safe driving as a habit.
- Purpose of insurance
People buy life insurance for various reasons beyond getting a life cover. The specific purpose and needs for which you are buying a policy may impact your premium amount as well. The rates will vary, depending on whether you are buying for protecting your family, ensuring your business or planning your estate. So you must do a fair amount of research in this context.
- The policy
Finally, the type of policy you buy, its length and coverage also determine the premium value. Basically, you pay a larger amount for a longer-term and a smaller one for shorter terms. Also, whole life insurance policies are expensive as compared to term life insurance policies. Getting to know the basics of life insurance is important if you want to calculate the optimal premium amount and compare policies and providers.
Understanding these factors that affect life insurance premiums is vital because they can help you compare the quotes and find the best one. At the same time, you can work on certain factors such as your weight, smoking, and lifestyle habits to save up on the premium.
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