If you want your family to be financially secure no matter what happens to you, then buying life insurance makes perfect sense. But the costs of taking out coverage can vary widely from person to person. Which factors are used in calculating your premiums?
At its heart, insurance comes down to statistics, trends, and averages. And the simple truth is, younger people are likely to have more years ahead of them, and therefore will pay more premiums into a policy,
This means the insurer is likely to make more of a profit before any payout is needed, and so they’re prepared to charge lower premiums. If you want to get the lowest possible life insurance premiums, buy your policy as young as you can.
If you have any existing health conditions which could lead to a shorter life expectancy, your premiums will be pushed up. These conditions can include physical ones such as heart disease, or mental health problems including depression.
Your Family’s Health
But it’s not only your own health that matters to the insurer’s calculations. If your family has a history of disease with a hereditary element, that will also be taken into account.
For example, if your parents or grandparents suffered from cancer, the statistical risk is higher that you will too, and so your premiums will be higher to match that risk.
However, it’s important to note that this effect only matters for illness in blood relatives. Any health problems your spouse or partner may have will not usually have any effect on your own insurance costs.
Whether You Smoke, or Have Quit Only Recently
If you smoke, your premiums will be raised substantially, with smokers aged 50 or over often charged twice the rates of equivalent non-smokers.
However, the good news is that with life insurance, quitting smoking can have a positive impact relatively quickly. If you stop for a full twelve months, you’ll usually see a reduction in your premiums. And depending on the insurer, you could be treated exactly the same as a lifelong non-smoker after being tobacco-free for three to five years.
Other Lifestyle Factors
Tobacco isn’t the only lifestyle factor that a life insurer will be interested in. You’ll usually be asked whether you drink alcohol, and if so, how much during the average week. The higher the amount, the more the cost will increase.
Most insurers will also want to know about any potentially risky pastimes you enjoy, such as extreme sports, or if you work in an occupation with a statistically higher risk of accident than a typical office job.
The Type of Insurance You Buy
If you choose term life insurance, you’ll be covered for a specified number of years. Once this period is up, the policy will be canceled and you’ll be due no further benefits or coverage. This is the least expensive kind of life insurance overall.
If you choose a whole of life policy, you’ll be covered for as long as you keep paying premiums, which means a payout at the end of your life is much more likely. This kind of insurance has higher premiums than term life coverage.
Amount of Coverage
Lastly, the amount of coverage you buy will have a significant effect on the amount you’ll pay. Higher total payouts will mean higher premiums, all else being equal, so only take out the coverage amount you actually need.
All of these factors have an influence on your premiums, but every insurance company uses different weightings in their calculations. It’s important to compare policies carefully before buying, as your own circumstances could be treated very differently from insurer to insurer.
Whether you buy life insurance from an independent broker or through a comparison website, taking the time to shop around can save you a considerable amount on your premiums.