Finding out how much your life insurance might cost is an important calculation because you want to be sure that you have enough coverage to protect your family in the event that something happens to you. You also want to be sure that you have selected a policy from a quality company at a premium that is competitive.
There are many factors that go into determining your life insurance premium, and this article will tell you what’s behind the mirror in that process.
Knowing how premiums are calculated can be extremely helpful in assisting you with the quote process to get your life insurance online. Most of the time, however, our clients ask this question to find out why they are paying so little or so much for their policy.
There are two overall ways that determine the life insurance rates, one is broader and focuses on large internal factors of the insurer and the other has to do with individual qualifications. The two ways are factors on the insurance company side and other are factors associated with you, so let’s break each one down.
Internal Factors of the Insurance Company that Influence the Rates
This part of rate determination is the one that you won’t usually know about unless you work in the financial services industry. It is also the reason you may see one company charge $80/mo for a $500,000 term life plan while the same coverage is available for $30 with a competing carrier. See life insurance rates are determined primarily by mortality and company performance which can cause the rates to increase or decrease. Mortality which is a statistical prediction of a current death is calculated by math geniuses who crunch numbers known as actuaries. Once there is a number, a company will determine how to average out the rates among the large pool of insured.
The second part of the calculation comes down to performance which can be separated by interest earned and an expense ratio of the company. You see, life insurance companies are huge investing machines and the way they make their money is by investing your premiums to get large returns. Obviously, the better the company does with its investments the more competitive rates it can offer you. Now you can’t have performance without any cost so there are also expenses that the company incurs such as agent commissions, operating costs, admin fees, marketing and the list goes on. Better the company manages its expense ratio the better it is for your pocket as well.
You should have a clear idea now that on the side of the insurer Mortality and Performance of the company, determine the end rate to you the consumer. However, that’s not at all, as there are a bunch of factors that will also determine an individual rate.
Individual Factors Determined during the Application
Life insurance companies will consider various factors that will determine your overall premium. Once you apply, the company will do their due diligence and assign you a rate class like Preferred Plus, Preferred, Standard Plus, Standard, and Substandard. Preferred Plus being for the ideal applicant and substandard for a high-risk applicant.
>>You can learn more about rate classes here.
Your Gender
Yes, you read that right! If you’re a male you will be paying more than a female applicant even if all other factors are the same. The reason is that statistically, men have a higher chance of dying and actually live less than females. Maybe because we do more crazy stuff but that’s just a guess.
Your Age
This is the biggest factor by which the life insurance carrier determines your premium. You might want to ask your agent questions about age nearest and age last. If your birthday is coming up, for example, some carriers will assume that you are that next age up, which could bump your premium. If you’re within six months of your most recent birthday, generally you might be able to backdate the policy to “save age”. In most situations, you will be responsible for paying back premium for those other months, too, so run a calculation to see if you’re within the right range to save age on your policy. As you might expect, the younger you are, the cheaper your policy is going to be. This is because the insurance carrier uses mortality rates to “guess” the chances that you might die at any particular age (exciting job, right?). The younger you are, the less your risk, and that’s why your premiums are cheaper.
For Example, a 35-year-old female will pay $33.69/mo for $500,000 30 year term life policy. A male will pay $40/mo for the same exact policy, the gap widens as you get older.
Overall Health
When applying for life insurance, expect to be asked about 40 questions about your health. The insurance company wants to know what conditions you have if any and how are they managed. Based on that they will determine what risk category to put you in and in some cases turn you down. But don’t worry, you might be surprised by the number of life insurance carriers who have taken a leap forward with regards to how they consider certain health issues that used to be uninsurable. For instance, some carriers are friendlier towards diabetes or heart disease than others. Simply going through a quote engine will not necessarily connect you with the life insurance company that provides the best value. In some situations, your life insurance risk class can be raised by as much as one or two categories just by choosing the right carrier.
Your Build
If weight is an issue, you should know that carriers use height and weight tables to initially identify which category you might fall into. Losing some weight recently, although a great accomplishment, is not likely to convince the carrier that you’ll stay that weight or lose even more. In fact, many carriers want to see whether you’ll be able to maintain that weight for the long term, so you’ll want to be sure that you’ve kept that same weight for at least one year. Now, you may be wondering what if you’re a health nut but just a little bit over? Unfortunately, your build is a big factor and we have seen cases where people pay two to three times more just for being overweight. The reason is that if you’re overweight your risk of getting heart conditions, diabetes, and other illnesses go way up, so does your premium.
Smoking Status
Checking off the “smoker” box on your life insurance quote is one way to spike the premium you’re quoted, but carriers view some other tobacco use a bit differently. For example, if you only enjoy a cigar every so often, you might qualify for a nonsmoker rate through Prudential. Smoking status is a lot like your weight- recent changes are not enough to convince a carrier that you’re in it for the long haul. They want to see sustained success. Some carriers want to see that you have been smoke-free for at least two years, and others like to think of one year as the marking point. If you’re within several months of hitting a major milestone like being smoke-free for two years, consider waiting until you pass that milestone to get your life insurance coverage. It could make a big difference on your bottom line premium payment.
Even if you are classified as a smoker, it’s still possible to receive life insurance at an affordable and competitive rate, you just need to look around. There are some life insurance carriers who award “fit credits” depending on other aspects of your life, like build and good health. If you can meet excellent status in these areas, you may be able to get the best possible rate class for a smoker. Simply put, doing a little research is going to help you in the process of identifying the right carrier for you.
>>More information on smoking and life insurance here.
Background History
Besides reviewing your health and smoking status the insurance company will dig around to see your driving, criminal and financial history. For driving history, they are looking to see any moving violations and if you have too many tickets or a DUI, expect to pay more for life insurance or be turned down if the situation is more severe. The company will also check for any felonies or misdemeanors in your past and in the event that you’re on probation or parole, you’ll have to wait for at least 12 months after getting off to be considered for coverage. Your financial history is not exempt and the company will want to know if you have any bankruptcies in the past as well.
Hobbies or Dangerous Occupations
Let’s put it this way: if you enjoy skydiving as a regular hobby, it might be a challenge to insure you. It’s not that life insurance companies ban all activities that might be classified as “high risk”, it depends on the activity. If you love to fly airplanes in your free time or go deep sea diving on a regular basis, however, you could be looking at a costly rate class or an outright denial. As mentioned earlier, this is totally dependent on the carrier and the activity at hand. If you have a certain occupation like deep sea underwater plumbing, oil rig worker or a bomb diffuser we have to work extra hard to get you a company that will approve you. Your best bet is to work with your life insurance expert to select an appropriate company that is likely to give you the best possible rate class. In the meantime, be safe! We’re hoping you never actually need to cash in on your life insurance policy.
Amount of Coverage and Type
The amount you buy and the type of coverage can determine your rates as well. For example, the higher the coverage amount and the longer you need the policy for will result in higher premiums. Case and point, permanent life insurance will cost way more than a term policy just like $100,000 is going to be much cheaper than $1 million. You might be able to save some money if you pay on an annual basis, too. Play around with the numbers to determine that you have selected a policy with the comprehensive coverage you need at a price point you are comfortable with. So many families have been saved financially by the existence of a life insurance policy- make sure that your family is protected with the coverage you need.
Let InsureChance do the legwork!
As you can see there is a whole bunch that goes into determining how much you pay for life insurance and at this point, you know more about it than even some professionals. The key to getting the best rate is picking a company that will provide the most competitive rate based on your factors. And in order to do that you don’t even have to work that hard since here at InsureChance, we work with over 60 top rated life insurers to find the best rate for you. So feel free to Get Life Insurance Rates Online or call us at 888.492.1967 if you prefer to speak to a friendly voice!
