Every insurance company has a set of underwriting guidelines that influence the premium rates of different applicants. How much premiums you pay depend on the risk you pose to the company including your chances of passing away or business failing in the case of business life insurance.
Here, we take a look at six factors that could pump up your insurance premiums.
It goes without saying that the older you get, the more likely you are to suffer a life-threatening illness or pass away. Insurers charge less for people who purchase insurance products at a younger age than the elderly.
As we mentioned, premiums are calculated based on risks. Let’s say you purchase a 30-year level term insurance in your 20s. The insurer will evaluate the chances of you surviving for the next three decades and see if that is feasible.
Now imagine doing the same in your 50s. The insurer will place a higher price on your policy because your chances of living up to age 80 or so are lower especially if you have a preexisting health condition.
Surprisingly, many life insurance purchasers believe that the only payment schedule available is the monthly plan. And there’s a cost for that; paying higher premiums.
Do you know you can switch to quarterly, semi-annual, or annual plans and save a lot on premiums payable? That’s right! Just like supermarkets do on bulk shopping, insurers also award discounts to customers who make fewer payments.
Even though the discounts aren’t so dramatic, you can expect to save between 2% to 8% on annual premium payments compared to a monthly plan.
Family health history
There’s nothing you can do about your family lineage’s genetic composition. As part of underwriting guidelines, your insurer may ask for a detailed health history of your immediate family members during a medical examination.
If the findings reveal that two or more of your family members suffered a heart attack before the age of 50, that would raise a few questions. Likewise, if your mother or sister suffers from breast or cervical cancer, chances are you’re also at a high risk of getting diagnosed.
However, it’s important to note that having a risky family health history won’t disqualify you from coverage. Usually, you’ll only pay higher premiums than a person with a clean family history.
If you have high-risk jobs like truck driving, deep-sea fishing, machine operation, or piloting, you’ll pay more premiums than a regular office-bound employee. These jobs tend to have higher fatality rates, and insurers consider this fact by raising their holders’ premiums.
Perhaps surprisingly, similar occupations can have varying premium ratings. The reason for this is the statistical nature of pricing. A good example is a company director and a director of a company. The former may pay more premiums than the latter. So you want to be keen and truthful when mentioning your occupation.
If records indicate that you have a reckless driving history, it raises a red flag to the insurance underwriter. How often do you get speeding and parking tickets? Have you been involved in on-fault collisions in recent years?
Luckily, most companies use driving records dating back to the last three years. So if you’ve been adhering to the traffic regulations during this period, you should have little to worry about.
Smoking and drinking habits
Smoking and excessive drinking have been proved to deteriorate one’s health in the long-run. Life insurance companies frown upon these habits matter, as is evident in the premium rates payable by insured smokers and drinkers. For example, a 50-year old smoker will pay up to four times more premiums than a non-smoker the same age.
What this means is try to moderate, or completely quit, alcohol and drug intake if you’re looking to keep your life insurance premiums rates low.
Aside from the factors discussed above, the life insurance policy and the kind of coverage that you choose also influence the premiums. For instance, level term life insurance attracts lower rates than permanent policies. What’s more, if you’re an employee and decide to purchase life insurance yourself, it would cost you more than getting a cover through your employer.
How do you keep your premiums low while ensuring you get sufficient coverage? Please share your strategies with us in the comments below.