10 Factors That Affect Your Life Insurance Premium

The purpose of a life insurance policy is to provide financial security to the family of the policy holder, in the event of his/her death. Insurance premium is the amount paid to the insurance company at regular intervals for providing insurance cover to the person availing this facility. Before you go ahead and purchase an insurance policy, you should take time to shop around to find out which insurance company asks for the lowest premium.

Many of us believe that people who are healthy and fit, pay the least premium. However, this is not always true, because our current state of health or fitness is not the sole deciding factor. So, which factors decide the premium?

In this HealthHearty article, we shall focus on the many factors that determine your premium amount, so that you don’t end up paying a higher premium than what you should be paying. The bottom line is that the higher the risk of the applicant’s death, as assessed by the insurance company, the higher the premium he/she is asked to pay.

The biggest deciding factor when it comes to determining your premium amount is your age at the time of applying for the policy. The younger you are when you apply for insurance cover, the lower your premium will be. This is because someone who is young is less likely to die a natural death during the time of coverage, as compared to someone who is in their 60s or 70s. A young person has many years to go before the company has to make payouts, and till then, he will have paid a lot of money as premium. This reduces the risk incurred by the insurance company, which automatically translates to lower premium amount.

However, old people are asked to pay a higher sum as premium to compensate for the risk incurred by the insurance company, as the probability of claim being filed after a few premiums, is higher. To avoid paying high premiums, it is recommended that you apply for a policy when you’re young.

Along with your current age, your current physical health also plays a key part in determining your premium. Your insurance provider either asks you to fill in a questionnaire, or conducts a medical examination. If you are found to be in good health, with no major health issues in the recent past, you’ll be eligible for a lower premium. However, if you’re diagnosed with any form of severe health problem, such as diabetes or high blood pressure, you’ll be asked to pay more.

Along with your current health, insurance companies also take your medical history into account. If your medical records indicate chronic illness or other severe health problems, you are required to pay a higher premium. This is because a chronic illness increases the chances of an early payout.

The fact that insurance companies take account of your family’s health in order to determine your premium, can be disappointing, because it’s something that’s totally beyond our control. However, the sad truth is that if you have a parent or sibling who has died of cancer or heart disease before the age of 60, it is highly unlikely that you will be charged a lower premium. In fact, some insurance companies charge you with higher premiums even if a member of your family has been diagnosed with one of these conditions before 60, but has survived.

If you didn’t know, your life insurance premium can be affected largely by your job because some professions are riskier than others, which increases the chance of a payout by the insurance company. Just compare the job of a software engineer and a firefighter. Which one do you think is more hazardous? Surely, that of the firefighter, and this means he has to pay a higher premium. Other high-risk professions include those of a stuntman, construction worker, airline pilot, police officer, soldier, mine worker, etc.

Do you smoke or enjoy your drink often? People who are chain smokers and/or drink frequently, are required to pay more because smoking and drinking take a heavy toll on your health. A smoker or a drinker is considered a high-risk individual by the insurance companies. However, if you quit these habits, you can be eligible for lower insurance premium after one year. However, the insurance company will ask for blood test results as evidence. Now, isn’t that reason enough to quit?

Not only does a high-risk job cause your insurance premium to go up, but also a recreational activity with substantial amount of risk involved. In other words, your love for extreme sports can translate into a higher premium, because getting involved in such dangerous activities can increase the risk of untimely death. Here’s a list of such activities.

• Skydiving
• Private aviation
• Scuba diving
• Motorsports
• Rock climbing
• Bungee jumping
• Paragliding

Note that different insurance providers have different opinions regarding which activities are riskier, as compared to the others. Also, your experience, level of skill, and how often you indulge in these activities, are taken into account.

This factor has to do with your ability or willingness to pay the premium on time, and not any risk that could cause an untimely death. Before they decide on how much premium you would pay, insurance companies check your credit score and credit history, to determine if you’re financially responsible. People with a bad credit score are required to pay higher premiums, just to compensate for the risk involved.

Road accidents are one of the leading causes of death and severe injuries, and being a reckless driver only adds to the risk of an untimely death. Insurance companies ask for your driving record when you apply for an insurance cover, to verify if you are an irresponsible driver. If you are, you are required to pay a higher premium. However, most companies are only interested in your recent driving record, and do not raise the premium if you haven’t committed any major violations in the past five years.

Are you planning to apply for a policy for whole life or a fixed term? How much is the amount you want as death benefit? All these factors can influence the premium you pay for your life insurance cover. The premium is higher for whole life insurance because in that case, the insurance company has to pay you the money, sooner or later. In case of a term insurance, the premium you pay is less, because there is little or no chance of a payout by the insurance company. Also, opting for a group insurance is a good idea, because the premium amount is inversely proportional to the number of members in the group.

Some insurance companies also consider your gender when calculating your insurance premium. This is because statistics show that women have a higher life expectancy as compared to men, and hence, are required to pay less.