This is not an easy question to answer because there are so many variables involved in determining an individual life insurance policy, as with almost any form of insurance. Auto insurance, for example, is based partially on the make, model, year, and value of the car you drive. However, even if you and your neighbor own the exact same vehicle, you might pay different premiums for auto insurance based on age, driving record, and the company you choose to purchase insurance with.
The same basic principle applies to obtaining a life insurance policy, and you’ll need to do a lot of comparison shopping before choosing the provider and policy that best suit your needs. Not only will you have an incredible amount of options to sift through, but life insurance companies have complex algorithms in place to determine premiums based on your personal information.
There are, of course, life insurance calculators to help you get a ballpark estimate of what different life insurance policies might cost, but before you start looking for coverage, it’s a good idea to understand some of the most common factors involved in calculating your costs. Here are a few things that could play a role in determining the cost of life insurance.
The older you get, the more you’re going to pay for life insurance. The cost of premiums is based on several different factors, but there’s no denying that the older you get, the greater your risk of death. The point is that waiting to purchase life insurance is going to increase your costs, so if you’re thinking about taking out a life insurance policy, now is the time.
Statistically speaking, women tend to enjoy a longer life expectancy. This won’t net the ladies a huge discount, but all things being equal, women are likely to pay a little less than men for a life insurance policy.
Before you can get approved for life insurance, you will have to fill out a questionnaire detailing your medical history. Because your medical history could have an impact on your overall health risks and life expectancy, the questionnaire could not only affect the price of insurance, but certain factors could disqualify you from getting life insurance with certain provider, or from getting certain policies.
However, it is imperative that you provide your medical history and answer questions as accurately and honestly as possible. If your insurance provider discovers that you’ve provided fraudulent information, it could lead to cancellation of your policy or even act as grounds for refusal to pay out after death.
Generally, you’ll have to disclose information about any major illnesses, surgeries, chronic conditions, and anything that could increase your risk factors for death or reduce your life expectancy. A history of heart disease, diabetes, cancer, and so on will almost certainly impact the cost of life insurance. You’ll also have to answer questions about your lifestyle.
In addition to your medical history, a life insurance questionnaire will likely include questions about your lifestyle to ascertain if you’re at increased risk for death. For example, you’ll be asked about any use of tobacco products, alcohol, or drugs. All of these could increase risks for serious health issues and reduced life expectancy.
Again, it’s best to be honest. If you claim that you don’t smoke when you do or you admit to drinking the occasional glass of wine but omit that you’ve been to rehab for drug addiction, you could risk having your policy cancelled or voided later on because you provided fraudulent information.
Your occupation and your hobbies could also affect the cost of your life insurance, mainly if they are considered dangerous. Someone who operates heavy machinery, for example, might be deemed at higher risk than someone who has a desk job.
Certain activities could also increase the cost of your life insurance policy. If you’re something of an adrenaline junkie and your preferred activities include sky diving, cliff diving, scuba diving, bungee jumping, rock climbing, white-water rafting, race car driving, and other hobbies with a high risk for harm, you may end up paying more for insurance. This depends entirely on the provider – some won’t even ask about your hobbies.
In some cases, you’ll be required to undergo a medical exam before you’re approved for life insurance, or before you can lock in a rate. Not every provider or policy requires this, though. Generally, a medical exam includes recording your height, weight, and blood pressure, as well as taking blood and urine samples for testing.
You can find policies that don’t require a medical exam, but the pricing for these policies is almost certain to be higher from the outset, so if you’re in good health, you could save some money by submitting to a medical exam.
Naturally, the insurance provider you choose will have some bearing on the cost of your policy. Every provider offers different plans and coverage at different rates and has their own algorithms for determining risk and calculating the cost of premiums.
Type of Policy
There are a few different options when it comes to life insurance policies. You may select a term policy that expires after, say, 5, 10, or 20 years. These policies tend to be the least expensive type because of their short duration. You can also choose universal or whole life policies that will last throughout your lifetime as long as you continue to pay premiums.
In some cases, you can get policies that have a savings/retirement element that allows you to put a portion of payments toward premiums with the rest going into a savings/investment account that pays out after a certain age or simply gets lumped in with the payout on your policy following your death.
Value of Policy
Finally, you’ll have to decide on the value of your policy. You may want just a few thousand dollars to cover the cost of funeral expenses, or you might want a policy that numbers in the hundreds of thousands or even millions of dollars to ensure that anyone you leave behind (a spouse and/or children, for example) is cared for in your absence. The greater the value, the higher your premium.