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Understanding how insurance companies calculate your premium rates can be very confusing. It may seem like they are merely randomly assigning you a figure, but this is obviously not the case. Insurance providers consider many different factors when they calculate the cost of your insurance premiums. By learning more about the various factors, you can find the type of policy that will cost you less and best meet your particular needs.
Calculating Your Lifestyle Risk Insurance companies calculate your risk of dying based on your current lifestyle. You will be assigned to a certain category which will be reflected in the cost of your premiums. If you have a higher-risk lifestyle, you will have to pay higher premiums. For example, participating in a high-risk hobby or being employed in a high-risk occupation will increase the cost of your insurance premiums. The reason is that insurance companies have a higher possibility of you submitting a life insurance claim. Evaluating Your General Health Your current health status is one of the most important contributing factors to the amount you have to pay for your premiums. Therefore, you will pay higher premiums if you smoke, have a pre-existing medical condition such as heart disease, diabetes or high blood pressure or are overweight. Medical Examinations: That’s also why you have to undergo a comprehensive medical examination before you are able to purchase a standard life insurance policy. The exam normally includes testing your urine and blood for signs of disease and the presence of certain prescription medications, illegal drugs and nicotine. You will also have your blood pressure checked and your current weight recorded. Resist the temptation to lie on your insurance application because the results of your medical examination will reveal the truth. It’s important to note that not every life insurance policy requires you to complete a medical examination. However, you will have to pay higher premiums because your insurance company assumes a higher risk if they don’t assess your physical health. Assessing Uncontrollable Risk Factors Sex: Unfortunately, certain risk factors insurance companies consider are beyond your control. For example, men pay higher premiums than women because statistically they don’t live as long. Age: Your age will also determine the rate of your insurance; young policy holders pay less for their premiums because they have a lower risk of dying soon after they purchase their insurance policy. On the other hand, you will pay more for your premiums if you purchase a life insurance policy when you are older. Family Medical History: The medical history of your family may also play a part in determining your premium rate. If your family has a history of a serious medical condition such as heart disease or cancer, you will often pay a higher premium. Assigning You A Risk Category Your insurance company will review the results of your medical examination, your age, sex, occupation and lifestyle to assign you a certain risk status. They will place you in a specific category which determines that rate of your insurance premiums. Young, healthy individuals who don’t work in a high-risk occupation are normally placed in a “preferred-buyer” or low-risk category. This means they will pay lower premiums. On the other hand, older individuals who are overweight, smoke or have a family history of life-threatening medical conditions will be placed in a high-risk category. The end result is higher insurance premiums. The good news is that insurance companies use different criteria to assign their policy holders into certain risk categories. Therefore, you may be able to save money by shopping around for another insurance provider who offers a better deal on insurance coverage. |
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