How Life Insurance Rates are Determined

Life insurance, in fact all insurance, is based on the idea of sharing the possibility of some adverse/negative occurrence.  A large group of individuals, each year, pay their small part of the total of the insurance claims so that when they die, their spouses and children (called beneficiaries) can get a large amount in relation to what they paid into their policy. The life insurance companies are cautious, and rightly so, for the good of all policyholders and try not to insure (or they charge higher rates for) people who statistically, because of past medical history or riskier life style, may die earlier than expected.

If the insurance companies accepted these individuals who are at “higher risk” at normal rates, then this could, at some point, increase the premium rates for next group of people who are in good health. The reason for this is that if claims (money paid out) exceeded money received in premiums, the life insurance company could be paying out more than they collect. Too little money received while paying more in insurance claims could hurt the insurance company. With a very large amount of claims because of bad pricing the life insurance company might even go out of business and not be there to assist the beneficiaries of the people who depend on them to pay their life insurance benefits. The life insurance company has to be sensible and far-sighted resulting in a strong financial position to serve all the policy owners.

Underwriting: By testing and studying the histories of the people who apply for insurance, the costs to the insurance consumer are kept down. This procedure of reviewing what rate is charged to an individual is called underwriting.

Underwriting life insurance is not a precise science: Each life insurance company looks at circumstances in a somewhat different way. That’s where an experienced and knowledgeable advocate for your insurance comes into play – a high-quality agent – an agent that has worked with the different life insurance companies and can direct the insurance policy to the company that fits each person’s circumstances and history – and has the best rate. That’s where a company, like, comes in.

What are the underwriting concerns of the life insurance companies? They are looking at the kind of health concerns that one’s doctor is looking for: Cigarette smoking, cholesterol above normal limits, the ratio of good cholesterol to bad cholesterol, one’s weight and any medical history or dangerous recreational sport that could decrease a person’s life span.

Synopsis of how life insurance rates are calculated:

  1. One’s age
  2. Health history
  3. Gender: A female is charged less for life insurance than a male of the same age based on the fact that females live longer.
  4. The medical history of one’s parents, brothers and sisters
  5. Lifestyle: Do you drive race cars? Do you go to hot spots in the world? Do mountain climbing? Parachute jump?

Life insurance companies want to ensure that a candidate receives the best coverage rate, and by using these techniques, the cost to the insurance consumer can be kept to a minimum. Click here to start your life insurance quote.


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