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life insurance involves purchasing a contract called a policy with an insurance company. In return for paying premiums, the insurance company agrees to pay a sum of money to the beneficiaries you have named in the policy when you die.
Risk Assessment The rate of life insurance policies is determined by calculating various risk factors that predict how long groups of policy holders will live. Insurance companies use information received by applicants to assess their risk level. Based on your responses, you will be placed into a specific risk category based on your age, your general health, occupation and your lifestyle. Although it is impossible to determine exactly when any one individual in the group will die, mathematicians can estimate approximately how many people will die during the first year, the second year, etc. For example, they can estimate relatively accurately how long a 28-year-old female who is a non-smoker, exercises regularly, is of average weight and has parents and grandparents who lived a normal lifespan. Premium Rate Calculations Insurers group together individuals who possess similar characteristics in order to calculate a premium that reflects that group’s risk level. Individuals with similar risks will pay the same premium rates. This process is referred to as underwriting or risk classification; it enables insurers to treat all policy holders equally. Confidentiality of Applicant Information You may be concerned about the confidentiality of any information you provide on your insurance application form. Or you may worry that the results of any medical examinations will be made available to your family members. Fortunately, insurance companies will protect your sensitive data. This may include anything from a serious medical illness to the fact that you are an alcoholic or drug abuser. You can rest assured that your insurance company will protect all of the confidential information submitted by applicants and to their policy holders. If you have any questions regarding how to complete your insurance application or the various types of insurance policies available, contact your insurance agent. You can also conduct an online search and visit insurance company websites. |
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