What factors affect life insurance premiums?

October 10th, 2019
What

The premium that is quoted on all the different types of insurance policies looks to work out the probability of a pay-out and hence, it looks to identify the level of risk by asking you a number of questions.

Each insurer has its own matrix for risk calculations and thus the premiums will vary.

So what are the factors?

Age

As you might expect, the older you are, the higher the premium is likely to be as the risk is higher too. As such, over recent years, the over 50s policies have become very popular as the policy is available to elderly individuals and no medical questions are asked.

Due to the age factor, it can really pay to get your life insurance policy while you are young, that way the favourable premium can effectively be locked in.

Health

By looking at your height and weight, the insurer can see how healthy you are against the body mass index. I.e. if the BMI shows that you are in the obese category, than the chances of you having medical conditions such as diabetes are not in your favour and hence the risk of death is higher.

Medical History

Medical history is a major factor in the insurer determining the premium that should be applied. If your medical history is good, then the premiums should be low but if you have had serious injuries previously than this would be accounted for in the risk calculations.

Moreover, family medical history may also be taken into account depending on how common it is within the close family and the age the illness occurs.

Dependants

Typically your partner and children, dependants are a broad term to suggest the people that are financially dependent on your income. The more dependants you have, the higher the sum insured you will most likely need and hence, the premium will reflect the possibly high pay-out.

Marital Status

If you are married, cohabiting or in a civil partnership, you can get joint insurance, however these joint life insurance policies work on a first death basis, so it seizes to exist once the first partner passes away. This is why it may be better to pay extra and get two single policies as appose to one.

Occupation, Sports & hobbies

Jobs such as fishermen, pilots, soldiers etc, are seen as high risk professions and hence, premium is high compared to people who may have a 9-5 desk job.

This is also the case for some sports and hobbies, such as someone who enjoys rally driving and horse riding will pay more for their life insurance policy than some who only goes to the gym in the week.

Lifestyle choices- smoking and alcohol

Everyone knows smoking kills, so if you are regular smoker your premiums are much more likely to be higher than someone who is in good health and doesn’t smoke.

As a rule, if you have smoked tobacco in the last 12 months than you will be classified as a smoker. Regardless of how often you smoke and how much you smoke, you will be classified as a smoker and the premium will rocket up in comparison.

Alcohol related deaths such as liver disease is very possible amongst people who drink over the recommended guideline. As such the premium will once again reflect the higher risk of you passing away within the terms of the life insurance policy.

Travel

Depending on the countries you have travelled and how often you travel, your premium could go higher. As some countries pose a risk to your health, such as countries which have had an Ebola outbreak or perhaps a high number of HIV positive people, foreign travel is taken into life insurance risk calculations.

Type of premium

The life insurance company can offer you two types of premiums, namely, guaranteed premiums and reviewable premiums.

Guaranteed premiums – These types of premiums remain fixed through the term of the life insurance policy.

Reviewable premiums- These types of premiums allow the insurer to amend the premium depending on the level of risk during the review period. The review is done over a set interval period and the premium can technically rise as well as fall.

Gender

Statically women live longer than men, and this used to be reflected in the premiums until 2012, at which point the European Court of Justice brought in the gender directive which banned sex to be accounted in the life insurance risk calculations.

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