How Your Life Insurance Rate Is Calculated

What Influences Life Insurance Rates?

Life insurance companies depend on their underwriting departments to use information about personal health history, current state of health, tobacco use, family history, and even motor vehicle reports to decide how much of a risk a specific person presents in a life insurance scenario.

Actuaries analyze the data to make a prediction about how likely the insured person is to die.

This is why a term life insurance policy for a healthy 25-year-old is so much less expensive than the same policy for a 25-year-old who smokes, has three car accidents on their motor vehicle record, and has diabetes.

The second person presents more of a risk to the insurance company, so while the company may agree to offer that person life insurance, they’ll also charge more in premiums to offset the risk of an earlier claim.

Reasons For Higher Premiums

Reducing the risk of a claim or offsetting claims with higher premiums is a common practice.

There are a few things that will cause a life insurance company to charge more for premiums.

1. Health Risks

If you smoke or drink heavily, you present a greater risk for the company, so you’ll pay higher premiums.

A family or personal history of cancer or heart problems can be an issue.

Chronic conditions like depression, high cholesterol, obesity, and high blood pressure may cause rates to go up. Multiple health risks, depending on the individual’s medical records, could trigger a denial of the application.

It is possible to get life insurance, even with serious health issues. Even people who are declined by one company may be approved by another, so it’s crucial to shop around if you are declined.

Applying for life insurance after being diagnosed with heart disease or cancer is risky, but even if the insured person qualifies at a higher rate, they can ask for a new medical evaluation down the road to see if they can get the rate lowered when their prognosis and condition improves.

Many insurance agents have access to an impaired risk specialist who will understand which companies are most likely to approve a life insurance application for a high-risk individual.

2. Lifestyle Risks

Dangerous hobbies that present a higher risk of death include race car driving, sky diving, ultra-marathon running, surfing, wake boarding, snowboarding, mountain biking, and snorkeling.

Some professional-level activities cause the person seeking insurance to automatically be placed in a high-risk category. Scuba diving in depths over 100 feet, hot air ballooning, flying a private plane, mountaineering, bungee jumping, wingsuit flying, hang gliding, heli skiing, and big wave surfing are just a few dangerous activities that cause life insurance companies to take notice.

No matter the individual situation, it’s important to be completely honest with life insurance companies. They have many ways to identify fraud, and lying on an application could lead to a cancelled policy or denied claim down the road.