How Life Insurance Carriers Determine Premiums
Term life insurance can be a smart investment in the future, particularly if you are worried about providing for loved ones in a certain time period (for example, ensuring that a premature death wouldn’t leave children unable to complete their education, or a spouse unable to pay off a loan). Term life insurance is an easy-to-understand kind of insurance policy that covers a set length of time: If you pass away during that time and have been paying your premiums as you should, then the money will be dispensed to the policy’s beneficiaries (typically dependents such as children or your spouse). Those premiums will depend on three major factors:
- The Value of the Policy
The value of your life insurance coverage will depend heavily on the face value of the policy, the death benefit that would be paid out to your beneficiaries. Predictably, the best life insurance policies with high death benefits have higher premiums. Because term life insurance doesn’t involve an investment component like whole-life insurance, premiums are generally lower for term policies and provide the greatest benefit for each dollar invested.
- Your Risk Assessments
The life insurance company, of course, will charge higher premiums to assuage their financial risk if you are at high risk of dying within the policy’s term. For this reason, age is the single greatest factor in determining your premiums. Your health will also be a factor (and usually you’ll have to undergo a medical exam), with height/weight ratio, smoking status, drinking habits and genetic conditions all taken into account. Carriers will also want to know if you engage in any risky pastimes (such as drag racing or skydiving) and whether you have good credit and a reliable financial history.
- The Life Insurance Carrier
The premiums you’re offered by life insurance carriers may vary slightly based on what else the company offers in terms of account management and customer service. Some insurance providers also assess risk in slightly different ways, so you can do a little research to find out which carriers do credit checks, for example, or which are more likely to offer good rates to people with high-adrenaline hobbies.
Do you have any tips on how to choose a life insurance carrier or assess a policy? Share your expertise in the comments.