Essential Factors that Affect Life Insurance Premium

In the 21st century, having a life insurance policy is one of the best ways to secure your future along with your loved ones. Since a life insurance policy is a long investment, you will need to commit yourself to pay the premiums for a certain period. In life Insurance, the insurer promises to pay a sum of money in exchange for a premium. Payment is done upon the death of an insured person or after an agreed period. In some policies, you are eligible for an amount called maturity benefit at the end of the policy term. Now that you know what and why you need life insurance, you need to know the exact amount of money you will be paying over the period. 

The age of the insured

Age is one of the prime factors that will directly affect the premium for a life insurance plan. Generally, younger people are healthier with a lesser probability of claims compared to the elderly. That means they are less risky for the insurance company to cover. However, as you grow older, your body becomes more susceptible to frequent medical conditions. Even the slightest diseases like diabetes, asthma, etc. can have a huge impact on your premiums. So, you should ideally buy life insurance when you are young.

The gender

Several studies have been done over the human lifespan. Mot finding shows that women live longer than their male counterparts. Therefore, when it comes to life insurance, the premium is much lower for women as compared to men. The next important factor is your gender. Since women have a longer expectancy rate as compared to men, insurers charge them lower premiums with the assumption that they might end up paying premiums for a longer time than a man.

Profession

Your occupation plays a critical role in determining the premium for your life insurance. Some working conditions are more life-threatening than others. So, if you are working in such hazardous environments can affect your premium. Working in industries like chemical, mining, fisheries, oil, and gas has been linked with adverse health effects and the insurers might calculate higher premiums if you work in these occupations. For example, working in construction can put you at risk, such as regular exposure to chemicals. For that reason, the insurance company will charge a higher premium.

Premium payment duration

The premium payment duration is the period during which you are required to remit your premiums. There are different premium payment durations to choose from. The first one is a regular premium payment option where you are supposed to pay the premium for the entire tenure of the policy. The second option is a limited payment option where you will pay premiums only for a specified period and stand a chance to enjoy policy benefits. The third option is known as the single payment option. And here, you will be required to pay the entire premium in one go as a lump sum. So, your premium calculation will vary depending on the premium payment term you choose. For instance, single-payment policies have higher premiums compared to regular-payment ones.

Medical history

Your medical history both the present and past health conditions can determine the premium you need to pay for your life insurance plan. Before signing up for the policy, any insurance company will require you to go through a medical screening. Medical examination will help them in evaluating your existing or future medical risks before determining your premium. Your medical conditions can be an outcome of your lifestyle or hereditary. Regardless of the cause, if you are diagnosed with a pre-existing medical condition when buying the policy, then your premium rates will be higher compared to a healthy person. Therefore, you would be charged a higher premium if you have suffered from an illness in the past that may resurface or affect your present health.

Type of Coverage

With several types of life insurance coverage, the type of insurance you opt for will determine the life insurance plan’s premium. If you add any riders to your plan, the premium will increase. Besides, a longer policy term can also lead to a much higher premium compared to a shorter term. In addition to this, the insurance premium also depends on the type of life insurance plan you select. Term life insurance, for instance, is the most affordable form of life insurance and this will come with fewer premiums.

Conclusion

Premium rates differ from insurer to insurer and are calculated since the premiums depend on several factors. Since there are several types of life insurance policies in the market, they are not created equally. Therefore, before choosing one, you need to understand how each policy works. Always compare different options available in the market and choose the best policy for yourself.