Factors that Affect Premiums in Life Insurance Policies
Factors that Affect Premiums in Life Insurance Policies

Insurance companies take multiple factors into consideration before determining how much premium an individual should be paying. A premium is the amount of money that an individual is required to pay to get a financial coverage from an insurance company. While a lot of those factors can be controlled by the policyholder himself, some cannot be controlled in any way. If you control the factors that affect premiums, you are lowering your chances of being a high-risk investment and can hence be trusted by the insurance company. 

The factors that can essentially be controlled by you are as follows: 

  1. Consumption of alcohol and tobacco – Insurance companies typically ask the customer about their drinking and smoking habits. If you are a drinker and smoker, chances of your premium amount being high are more as compared to a person who does not drink or smoke. This is because both alcohol and tobacco increase the mortality risk of a person and hence, they become a high-risk investment for the insurance company. If you want a low premium amount, you should quit both the substances. 

  1. Status of health – The status of your health in general is a major premium determinant for most life insurance companies. This is because investing in a person who has more chances of passing away sooner is a high risk for the insurer. For example, a person suffering from diabetes or hypertension is relatively at a higher risk than a person who is free from all diseases and disorders. Moreover, if the age of the applicant is higher than a certain limit, he/she will be asked to take a medical examination/test by the insurance company. A medical examination can also be a prerequisite if the cover amount is very high. 

  1. Occupation of the applicant – The chances of your premium amount being higher than usual increase when you are working in a risky job. Examples of such jobs are deep sea diving, bomb demolition, etc. By working in such an environment, you are significantly increasing your chances of passing away sooner and are hence becoming a high-risk investment for the insurance company. In some cases, the insurance company denies an insurance policy altogether, to people who are involved in high-risk jobs. 

  1. Obesity  If you are obese or overweight, chances of the insurance company increasing your premium amount will be higher as obesity is a gateway to acquiring other illnesses as well. An appropriate example in this case would be heart attack or diabetes. If you want your premium rates to be lower, it is advisable to keep a strict check on your diet. 

  1. Riders or add-on covers – Riders are fundamentally additional benefits for which the policyholder is required to pay extra premium. Hence, the cost of an insurance policy will automatically increase if an add-on cover or rider is purchased along with it. It is advisable to evaluate the need of the rider before purchasing one. 

  1. Mode of premium payment – When you are purchasing a life insurance policy, you will be given multiple choices for payment of premiums. The total premium outgo will be significantly less if you choose to pay on an annual basis as compared to the monthly option. The insurance company not only saves on administrative costs but also receives the full payment for one whole year. 

  1. Purchasing mode – Whether you are purchasing an insurance policy online or offline will have a direct impact on the premium amount. A policy purchased online will be relatively cheaper than a policy that has been bought via an intermediary or an agent. Online purchases typically help the insurance companies cut down on agent’s commissions, administrative costs, and so on. 

The factors that are not under the control of the applicant have been mentioned below: 

  1. Age of the applicant – The later you purchase a life insurance policy, higher your premium amount will be. If you are purchasing an insurance policy in your 20s, you will have to pay significantly lower premiums as compared to a 40-year-old. This is because the mortality risk of an individual increases substantially with their age. 

  1. Gender of the applicant – Statistical studies have revealed that women tend to outlive men by a high margin. This directly affects the female gender’s age-related risk of mortality. Therefore, insurance companies typically charge lower premiums for women as compared to men. 

  1. Applicant’s genes – Some individuals are genetically vulnerable to specific diseases such as hypertension, diabetes, or cardiac failure. This significantly affects the amount of premium they are expected to pay as insurance companies usually ask for the applicants’ medical history. 

One should always try to lead as healthy a lifestyle as possible since it not only reduces one’s premium amount but also makes one emotionally well-adjusted. 

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