How to Identify Factors That Affect Life Insurance Premiums
Any factor that has a bearing on a person's life expectancy is considered in the insurance underwriting process, though not all factors increase or decrease life insurance premiums. These factors may affect the life insurance premium, may force the issuing insurance company to exclude certain conditions or activities, or may cause the insurance company to decline coverage altogether. The following steps describe the process an underwriting department goes through to determine an insured's premium, any exclusions and whether to issue or decline a life insurance policy.
- Difficulty:
- Moderately Challenging
Instructions
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1
Determine the applicant's age and gender. Nothing has more bearing on the baseline insurance premium than these two factors. Each insurance company maintains proprietary actuarial tables based upon its own claims experience that indicate an applicant's general life expectancy. The applicant's age gives the underwriting department an idea of how long premiums will be paid before a death benefit claim is submitted. Statistically speaking, women live longer than men and therefore enjoy lower life insurance premiums than men of the same age.
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2
Determine the applicant's tobacco usage. People who smoke or use chewing tobacco pay higher life insurance premiums than people who don't, simply because of the increased cancer risk. Some companies offer "preferred" tobacco rates to applicants who do not smoke cigarettes but use tobacco in some other form, or those who have recently quit smoking.
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3
Determine the applicant's health status. Pre-existing medical conditions may not lead to higher premiums, but they can lead to exclusions and declinations. In most cases, the insurance company will request a report on an applicant from the Medical Information Bureau (MIB). The MIB functions like a credit reporting agency for health and life insurance companies. Any medical conditions, inpatient hospital stays or outpatient surgeries will be listed on an applicant's MIB report. Individuals are allowed to access their personal MIB report once per year by calling toll-free (866) 692-6901.
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4
Determine the applicant's occupation. Some jobs carry more risk than others. Statistically speaking, the life expectancy of a commercial fisherman is not the same as that of an accountant. Underwriting takes this into consideration when deciding whether to issue a policy with exclusions for a death on the job.
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Determine the applicant's habits and hobbies. Some personal habits are reliable indicators of increased risk as far as insurance companies are concerned. These habits include excessive drinking, gambling and drug usage. Also, hazardous hobbies can lead to exclusions or declinations. For example, a private pilot may have an exclusion for death in an aircraft mishap in a private plane. Other hazardous hobbies include scuba diving below 100 feet, BASE jumping and paragliding.
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Tips & Warnings
While the temptation to hide facts from the insurance company may be a strong one, do not hide anything intentionally. If even a small amount of fraud is determined by the insurance company, your death benefit will not be paid to your heirs.
