What Determines The Cost of Life Insurance?
Why Do Different People Pay Different Premiums for the Same Life Insurance?
There are 3 key things that will determine what life insurance costs you:
- Your age
- Your health
- Your lifestyle
People often wonder why insurance companies charge different prices for different people of the same age, and the answer is because they present different risks of suffering death, critical illness or disability.
While the odds of suffering from any of these are roughly the same for a large group of people who are all the same age, the different health history of the individuals makes a big difference to the risk.
It might not even be the health history of the individual themselves, but their family history. Say you are a pretty healthy 40 year old with no major medical incidents in your life, but for 2 generations close family have been having heart attacks in their mid-forties. That is statistically significant and changes the risk for you as an individual, so insurers treat that case differently to all the other people in the same age group who do not have that sort of family history.
The other big factor that goes into working out whether people are higher or lower risks than others of the same age is "lifestyle".
Lifestyle includes things like diet, fitness, drinking and drug use (recreational AND prescription medication) as you'd expect. Some things add risks naturally, but some things take some risks away too. Another big part of the lifestyle assessment, and how that impacts on the price you pay, is your work or occupational duties.
Most people would agree that a librarian probably has a less risky job than a demolitions expert, so insurers treat them differently. They are different risks and hence get different prices or policy conditions.
So when an insurer decides that somebody is a different risk to others of their age that doesn't mean they won't accept you or give you cover.
It might be that it is too big a risk, or a risk that they can't calculate and put a fair price on, so they might decline to cover someone. More often though the insurer will charge an additional premium, which is just a way of working out the actual cost for the risk that an individual's age, health and lifestyle history suggests is fair. Or they might exclude some conditions if those conditions are in themselves too risky. Usually that is health conditions that are likely to arise again, or family health that is likely to recur, or dangerous lifestyles.
These factors are what goes into working out a life insurance premium for a client, and even though insurers start off with a "standard" price for all people of particular ages, the reality is each person applying for cover has their own price etc for them which reflects all of these risks.
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