There are two main types of term insurance; guaranteed premiums and reviewable premiums. With a guaranteed premium policy your premium is guaranteed not to increase during the term of the policy. However, if you have a reviewable premium policy then your premiums may increase during the lifetime of the policy.
Life insurance providers look at a number of different areas when determining your term life insurance rate, these include your age, your general health, your hobbies and your occupation. You will be asked a number of different questions to find out how much of a risk you present, and thus how likely it is that the insurance company will have to pay out.
When gathering quotes you may find that premiums can vary from one insurance company to another. This is due to the fact that each company has different criteria when underwriting a policy.
Age is an important factor when determining how much you will pay for life insurance. Premiums generally increase the older you become so it is worth taking out life insurance early if you have dependents. Likewise, the number of dependents you have will also be an important consideration when determining how much protection you require. The more dependents you have, for example, a spouse and children, the higher your premium will be. When calculating the amount of life insurance you need your provider will base their calculations on maintaining the standard of living that your family enjoys at present until your children, if you have them, leave higher education.
The insurance provider will ask about your marital status when processing your application. If you are married, cohabiting, or in a civil partnership then you may be offered joint life insurance. Although joint life insurance may be cheaper bear in mind that this type of policy pays out on a first-death basis. This means that the policy in effect ends when one of the insured parties dies so the remaining partner will need to seek alternative cover if required.
Your medical history is an important consideration, as is your height and weight. If you currently suffer from, or have suffered from a serious illness such as cancer or diabetes the price of your premium will increase dramatically. Infact, if you have suffered from cancer previously then the majority of insurance providers won’t offer you cover until you have been in remission for at least five years. Similarly, if you are obese you will be considered to be more at risk of medical conditions that are related to your weight including diabetes and heart disease; a high body mass index will increase your premiums.
Smoking can double your premiums as statistics have shown than smokers lead shorter lives. Even if you have stopped recently if you have smoked tobacco in the last twelve months then you will still be considered to be a smoker. Smoking includes cigars, nicotine patches and e-cigarettes.
If there is a history of serious illness in your family then your premium could also be affected. Your life insurance provider will take into account how many immediate family members were affected, their age when they became ill, and the severity of their condition.
You will be asked about your hobbies as many sports are deemed to be ‘high risk’ putting you more at risk of having an accident; these include pastimes such as skiing, horse riding, rock climbing and motorsports. Similarly, some occupations will incur a higher premium as they are seen as posing a greater risk than others; soldiers, fisherman and pilots are an example of an occupation that is seen as being ‘high risk’.
Outstanding debts are always taken into account when deciding how much protection you will need. These debts include mortgages and loans.
If you drink more than the recommended amount of alcohol you are deemed to be more at risk of alcohol related health problems including liver disease. This will lead to an increase in your insurance premiums.
If you travel overseas to countries with a high level of serious diseases such as HIV and many tropical diseases then your premium could rise. This is also the case if you travel abroad on business on a regular basis.
The purpose of taking out life insurance will need to be established, and your insurance provider will need to know how much you earn to make sure that you can afford the premiums. Perhaps you want to have cover in place until you have paid off your mortgage, or you have a young family that you want to protect should you die or suffer a debilitating illness?
Women used to receive lower premiums as statistically they live for longer. However, the introduction of the European Court of Justice Gender Directive in 2012 resulted in insurance providers not being allowed to take gender into account when determining the cost of life insurance premiums.
To summarise, insurance providers take into account a variety of different factors when determining how much you need to pay for your life insurance. The majority of these factors are aimed at gauging how much of a risk you present of making a claim. The higher the perceived risk then the higher your insurance premiums.