How Are Life Insurance Premiums Set?
Life insurance premiums, when it comes right down to it, are largely determined by one thing and one thing only: your life expectancy. Of course, the implications your life expectancy has on your life insurance premium also depends on the type of insurance you’re in the market for: term life, whole life, universal life, etc. But in the end, the life insurance company is going to take an educated guess at how long it thinks you will live, and set your premiums accordingly.
What Factors Affect Life Insurance Premiums?
Any time you request a life insurance quote (Save up to 20% on Life Insurance, Free Quotes!), the underwriting process begins. You will probably be given a preliminary life insurance quote upfront before the process begins. Then the underwriter will:
- Assess your medical condition – Young, healthy people are likely to live longer than their older or less healthy counterparts, and therefore cost less to insurer. Insurance providers usually pass these savings on to the customer in the form of lower life insurance premiums in an attempt to attract more low-risk business. The younger and healthier you are, the longer you’re likely to live and the lower your premiums will be. The moral of the story is it pays to buy life insurance when you’re young and healthy.
- Check for disclosed and likely risk factors – Familial conditions, motor vehicle records, and Medical Information Bureau reports could all indicate you are a high-risk customer and affect your premiums. If you have a history of reckless driving, for instance, you could be deemed to be at higher risk of dying young and have your premiums go through the roof.
- Occasionally, order a medical exam – Not all insurance companies require them, but if you’re a borderline case your underwriter may ask you to undergo a full medical exam in order to better assess your overall health.
Where Your Quote Comes From
Once your underwriter has gathered all the necessary information, she will “score” your risk and give you a final quote based on your risk level with a (hopefully small) profit margin tacked on, which may or may not match your initial quote. As you can see, it pays to buy life insurance when you’re young and healthy, so why wait? Get a life insurance quote today.
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Kyle, there are many other costs involved with life insurance quotes besides just expected mortality cost (or the reserves the company has to set aside to pay future claims). There is the cost to pay the life insurance agent, administrative costs, other distribution costs, and even the insurance company’s desire to be competitive in a particular market. Yep, not all life insurance companies want to be as competitive as they can be. In fact, if they are too competitive, they may invite something that is known as “adverse risk”.
Careful giving out opinions that aren’t true or I might write about you next time;) I’m sure you mean well, but needless to say, the issue of life insurance rates goes much deeper than a single number assigned by one underwriter.