What factors affect the cost of life insurance?
When it comes to life insurance, what you pay may be significantly different from your friends and family, even if you all have a policy with the same insurer.
So, what really goes into determining the level of your life insurance payments?
Factors affecting life insurance premiums
Insurers will carefully evaluate the level of risk they take on when offering life insurance, considering aspects such as your health, lifestyle habits, and a range of other personal factors.
Age
Age is often one of the biggest factors when determining the cost of your life insurance policy. The older you are at the time of your application, the higher your payments are likely to be as the likelihood of you passing away during the term of the policy increases.
Weight and BMI
Your weight and BMI (height to weight ratio) are another key factor that an insurer uses to determine the cost of a life insurance policy. Having either a high or low BMI score can increase the risk of health problems such as type two diabetes and heart conditions, therefore it is likely this could lead to higher premiums.
Family medical history
The insurer will likely ask about your medical history, if you have suffered any serious health conditions, past or present, or had major surgery.
They may also ask about your mental health, such as a history of stress, depression or anxiety, and any treatment you have had for this.
It is then highly likely they will want to know about any history of illness in your family that could be hereditary, such as:
- certain types of cancer
- heart disease
- diabetes
- neurological conditions, including motor neurone disease or Parkinson’s disease.
Having a family history of some health conditions doesn’t always mean you won’t be able to get cover, but it can sometimes push up the cost of your life insurance premiums and may result in some insurance companies being unable to offer cover at all.
Smoking
A significant factor in the price of your cover will be your smoking habits.
Smoking can lead to all sorts of health issues, from increasing the chances of getting a range of different cancers, to heart disease and strokes.
Insurers will ask you if you have used any nicotine or nicotine-replacement products in the last 12 months. If so, you are classed as being a smoker, and will most likely, face higher payments.
This means that if you are a smoker and manage to kick the habit successfully it will be worth discussing it with your insurer, or getting quotes for a new policy, as it may mean your monthly payments drop.
Alcohol consumption
The insurer will also ask about your drinking habits. After all, excessive drinking can lead to certain health problems, particularly related to your liver. As a result, big drinkers may face increased life insurance payments.
Occupational risks
You might not expect your job to make much difference to your life insurance payment, but it is actually an important factor in determining the cost of your policy.
The thinking is pretty simple. Certain professions naturally bring a greater element of risk than others. For example, working in the Armed Forces is going to be more detrimental to your chances of reaching old age than working in an office.
As a result, if you have a riskier occupation, then your policy may cost more.
Hobbies
Some hobbies, those that are categorised as risky, can increase your life insurance premium. For example: skydiving, motor racing and climbing.
How your choice of policy affects the cost of life insurance
Coverage Level
The more cover that you want from your policy, the higher your payments are going to be.
Ultimately, there are all sorts of considerations that go into working out what level of cover you want. For example, if you have a mortgage, then you will generally want the policy to ensure the remainder of the loan is paid off should you die.
Types of policy
Life insurance comes in a host of different forms. With a level term policy, the payout your loved ones will receive if you pass away will be the same. This is irrespective of whether you die in the first or last year of the policy.
Decreasing term: With this type of policy the amount you are covered for drops over time, and therefore the cover tends to be cheaper. This is the sort of policy which may appeal to those with a mortgage, as the payout lowers as the outstanding mortgage does.
Level term: With this type of policy the payout the amount you are covered for stays the same for the length of the policy.
Ultimately, there are all sorts of considerations that go into working out what level of cover you want.
Term length
How long you’re covered for will also impact the cost of your cover. The longer the term of your cover, the more expensive your payments will be. While most policies are taken out over a fixed term, perhaps 30 or 40 years, it is possible to get whole of life cover, where, as the name suggests, this ensures your loved ones will get a payout no matter when you die. Because of this certainty of a payout, the payments of these types of covers tend to be higher than with a fixed term policy.
How to reduce life insurance costs?
When applying for life insurance, it’s crucial to provide accurate and honest information about your health and family medical history.
Failing to disclose significant details, or deliberately withholding information, could result in your policy being voided, meaning your loved ones may not receive the payout you intended.
Always answer questions truthfully and keep your insurer updated with any changes to your health or lifestyle over time. This ensures your cover remains valid and your policy serves its purpose should the need arise.
