Life insurance is a critical financial tool, which is meant to protect one from the vagaries of life and bring normalcy into one’s family in case one dies suddenly. However, the most important things any potential policyholder will consider before investing in a life insurance policy are the premium-a regular payment one makes in order to maintain the cover. Life insurance premiums could be quite expensive, and they usually depend on so many factors. This article considers some of the best factors affecting life insurance premiums and ways in which knowing these can support your decisions in choosing the right policy.
Age
One of the determining factors about life insurance premiums is age. Generally, the sooner you buy-that is, the younger you are-your premium will be lower. This is because the chances of dying within that period of the policy are lower and hence pose minimal risk to the insurer.
Because the possibility of health-related issues and other factors that contribute toward one’s risk of dying go up with time, so do the premiums. One would reasonably expect that a healthy 30-year-old would pay a great deal less than would somebody who was well over 50 years of age. For these reasons, a lot of financial advisors will often recommend that people get life insurance as young as possible, even when they happen to be healthy, in order to lock in the lower premiums.
Health and Medical History
The current status of your health and medical records will say a lot in securing life insurance premiums. Most life insurance companies will ask you to take a medical examination or answer an extensive questionnaire regarding general health. These are to assist the insurance company in making projections on the risks involved when insuring your life.
For instance, pre-existing conditions of heart disease, diabetes, high blood pressure, and any other chronic illnesses will raise your premium. Even though you may currently have no serious illness, a family history of certain diseases like cancer and heart-related diseases could raise the premium you pay. Perhaps those who enjoy very good health and do not have a history of serious illnesses are the ones who can get away with paying premiums that are relatively cheaper.
Just because you have a pre-existing condition, don’t assume that you won’t qualify for life insurance. Most life insurers will insure individuals with health issues; they just charge more for their policies. A few companies specialize in specific types of medical conditions and therefore offer more competitive pricing than you would otherwise be able to obtain.
Smoking and Tobacco Use
Tobacco application or smoking habits increase the premium of life insurance on one of the utmost grounds. It is because smokers are considered under high risk due to their high vulnerability towards fatal diseases, including heart problems and lung cancer, as well as other respiratory disorders. Smokers may have to pay two to three times higher premium rate of life insurance compared to nonsmokers.
While purchasing life insurance, your company can charge higher, put you into a different risk category, or even refuse to insure you if you have been a smoker or used tobacco products sometime in your life. If you are one who has quit smoking for more than a year or so and continues to abstain, then the companies may grant you privileges at the time of policy renewal or while seeking fresh life insurance.
Gender
Life insurance also varies due to gender, although less applicable in many different plans and institutions. On the whole, women tend to outlive men and therefore are less of a risk to insure. Because of this simple fact, most females pay a bit less in life insurance premiums when compared to men.
While usually not extreme, knowing the premium difference between gender is good nonetheless when comparing policies. Particularly, the men’s rate is higher than their female counterpart due to the tendency or fact of having a shorter life span mostly caused by vices and hazardous jobs.
Occupation and Lifestyle
Other determinants are occupation type and lifestyle. If one’s nature of work involves hazardous environments such as firefighting, construction, or aviation, they will pay more on account of job hazard. The insurance company will charge more on individuals in hazardous professions, considering a probable injury or death.
Similarly, lifestyle decisions such as participation in highly risky sports-sky surfing, scuba diving, or mountain climbing-raise the premium as well. The underlying risk the sport plays becomes the determining factor behind the insurance companies’ asking for higher premiums. In case anybody has adventure-oriented hobbies then those are to be revealed at the time of application for life insurance; otherwise, there might be a scope that claims would not be taken into consideration afterward.
Type of Policy and Amount of Cover
Too, the type of policy directly influences the premium one has to pay for life insurance. Major types of life insurances available are: term life insurance and permanent life insurance.
Since the term policies cover you for a fixed period, generally 10, 20, or even 30 years, they are always cheaper. If you happen to survive the term, your coverage ends then, unless you opt to renew the policy. Term life insurance is ideal for individuals seeking low premiums and require cover on a temporary basis.
Another factor in determining your premium is the amount of coverage you choose. Quite obviously, the greater the amount of coverage-or death benefit-the greater will be your premium. What you are trying to do is balance the need for your family to have adequate coverage but still be able to afford a reasonable premium amount for you to pay.
Policy Riders and Add-Ons
Almost all life insurance, except for a few, allows the policyholders to customize the coverages through riders or add-ons. Some of these commonly availed riders are accelerated death benefits, waiver of disability, and accidental death cover. While this does extend the protection that your policy may offer you, it does so at the cost of larger premiums.
For instance, an accelerated death benefit rider allows you to draw upon a percentage of your death benefit if you happen to be terminally ill, but this will raise overall costs. You don’t want to just add riders onto your policy without first considering whether any additional benefits will be offset by increased premiums.
Credit Score
Some, but not all, insurers count your credit score toward your life insurance rate. They may view this as you doing business in an unstable financial environment and see you as a riskier customer. As credit score is treated differently from one insurance company to another, keeping a healthy credit score will help you get a better rate sometimes.
Knowing what affects and does not affect your life insurance premiums puts you in a better position to go ahead and make an informed purchase decision. It lists the key variables of age, health, smoking, and occupation to show just how much one pays for coverage. Positive health changes, not smoking, and the selection of the right policy according to needs help in reducing premium burdens, hence protecting your loved ones.
