Life insurance helps people leave financial support for loved ones when they die. The person agrees to pay premiums to a company, and that company promises to pay out a lump sum if the insured passes.
It’s a great way to make sure that loved ones are taken care of. However, not everyone is getting the same deal.
Not everyone pays the same amount for life insurance.
This is because life insurance companies base their rates on very specific traits of an individual. They will take things like gender, age, weight, lifestyle and medical history into account before deciding on a quote.
Once they’ve gathered all of the information they can, they’ll come back to a person with a number. But how exactly did they get there?
Steps to Getting a Life Insurance Quote
Speaking with an Agent
Once a person finds the right life insurance agent, this agent will need to gather some basic information.
Some of this information includes the individual’s age, gender, weight, medical history, and history of family illnesses. Other personal questions might include whether the person smokes, how often they smoke, their profession and what kinds of hobbies they have.
All of these things will help the insurance process to get started.
Lots of insurance companies ask that people have a medical examination, before being given an insurance policy. For those who say no, premiums will be more pricey.
An examination helps to ensure that the person is as healthy as they say they are. Any illnesses, diseases or bad habits may come up in an examination, and agents can base rates off of this information.
The number that a life insurance agent quotes and what is actually charged to a person can differ.
The true premium is decided by the people in underwriting, who use calculations and data to come to a true premium. These workers are like investigators, checking into things like motor vehicle reports, genetic diseases, and more.
The statistical data includes a person’s age, history, and current health. Underwriters gather this information and pass it onto actuaries.
Actuaries take the information gathered and use it to predict how likely a person is to make a claim. If a person has a high probability of making a claim, they will usually have a higher premium.
Actuaries will also consider statistical data about mortality and sickness. By applying the unique information about a person like their age, gender and weight, they can determine the probability of the person becoming ill or dying.
If a person has a greater chance of obtaining an illness or injury or passing away, the premiums will be much higher.
Underlying Factors of Life Insurance Premiums
A lot of investigating goes into setting a rate for a person, from the agent to underwriters to actuaries. However, there are some underlying factors that make a difference as well.
Rates for insurance policies consider three important concepts: Interest, mortality, and expenses.
- Interest: Insurance companies take the premiums a person pays, and use them to invest. The types of investments include bonds, stocks, real estate, etc.
Companies use this factor to figure out premiums, based on the earnings they will receive from their investments.
- Mortality: Different groups of people have different mortality rates. Companies separate people into their different genders, weights, etc. to get a better idea of what they can expect.
Each of the different groups has their own mortality rate. For example, men ages 60-70 will have a lower life expectancy than a group of men ages 20-30. These groups help insurance companies to predict how much those groups will cost in claims each year.
- Expense: An insurance company will take into account their own expenses and apply that to premiums as well.
Expenses like salaries, rent, legal fees, etc. are all taken into consideration.
Oftentimes, it is this factor that forces a company to offer higher or lower premiums. More successful, long-standing companies may have more expenses within their larger businesses and therefore have higher quotes to compensate.
Getting a Better Life Insurance Premium
There are lots of life insurance companies to consider. Some agents only represent a few companies, while others will search for quotes far and wide.
Shopping around gives people the opportunity to compare prices, as well as the policies they might want. There is nothing wrong with being patient and waiting for quotes that are more suited to a person’s situation.
While life insurance is calculated in a fairly straightforward way for all companies, it’s good to remember that some will be more flexible than others.
For example, some companies might offer lower rates if an unhealthy person is working to live a healthier lifestyle.
Other ways to get a better insurance premium include:
- Bundling: Most insurance companies offer more than one type of coverage. Bundling coverages with one company can create discounts and sales that help save on quotes.
- Keep up a healthy lifestyle: Having a good diet and an active lifestyle are great ways to keep the body healthy and free of illness or disease.
- Quit bad habits: Habits like smoking, drinking, and skydiving all increase the risk factor of a person. Quitting some of these dangerous, unhealthy habits is a quick way to lower insurance premiums.
More than 22 million Canadians have life insurance, which equals more than $4 trillion in coverage. Although some premiums are higher than others, life insurance is still a helpful asset to have for the future of our loved ones.