The Black Box of Insurance Rates
Explaining the Black Box of Life Insurance Rates
Life insurance can offer your family the assurance of financial support and give you the peace of mind that your loved ones will be financially protected. Rates for life insurance fluctuate based on various factors. Most people know that there’s a rationale behind their rates but they may not have much insight into what factors affect their rates and which factors don’t. Getting the full picture and understanding the range of factors used in their rate calculations can help you make the best decision for you and your family as you consider Full Life Insurance or Term Life Insurance. We’ll breakdown what really goes on when life insurance companies assess your risks, decide whether to insure you, and decide how much to charge you for your plan.
In this article, we’ll show you what’s going on in the black box of insurance rate calculations and show you the key factors that contribute to how much you’ll pay for life insurance. By making this opaque field easier to navigate, we hope you’ll be more confident in your life insurance selection and purchase.
Let’s dive in.
Super preferred
Preferred
Regular-plus
Standard or regular
Higher "table rates"
These generic names are not Chevron gas options but rather the different terms used by insurance companies to describe their different rate classes. Over the past several years, prices for life insurance term policies have been particularly affordable, especially for healthy individuals, but the same factors affect all plans you might be thinking about purchasing. Typically, you must meet stringent criteria to qualify for the preferred rates.
The following variables all are brought together to determine the exact price of your plan. Life insurance rates are calculated by plugging in your personal data across the following factors:
Age
The number one factor behind life insurance premiums is the age of the person getting insured. If you are still relatively young, chances are that you’ll be paying the insurer for many years before they ever have to worry about writing your family a check. Because insurance companies make rates more expensive the older you get, you are better off getting a life insurance plan sooner rather than later
Gender
Women, on average, live nearly five years longer than men. And because they’re usually paying premiums for a longer period of time than males, they tend to get slightly lower rates. This is why next to age, gender is the biggest determinant of pricing.
Health
Most insurance carriers will require you to take a medical exam in which the company records your height and weight, blood pressure, cholesterol, and other key health metrics. They may also require an electrocardiogram (ECG or EKG) to check your heart in some cases. It’s important to get any serious conditions like high cholesterol and diabetes managed before searching for coverage to ensure a competitive rate. Some companies do offer “no exam” policies, but you can expect that they have higher rates.
Smoking
Yes, life insurance companies will ask you about your smoking habits. Smoking puts you at a higher risk for all sorts of health ailments. Smoking is definitely a red flag for these insurance companies. In fact, it’s not uncommon for smokers to pay more than twice as much as non-smokers for comparable coverage. A smoking habits could be one of your top reasons for wanting to get insured in the first place, but we’d definitely encourage you to reconsider your smoking habit as it is a simple way to protect you and your family in the long-run.
Lifestyle
Life insurance companies are also interested in your lifestyle. Are you a fearless and adventurous person? Do your stunts make Tom Cruise shudder? Have you recently scaled treacherous mountains, gone sky diving, or raced cars? If so, you’ll probably have to shell out substantially more for insurance. When you engage in activities deemed as high-risk, insurance companies will ramp up your rates if you seek life insurance. Some companies may also charge you more if you have a relatively dangerous profession, such as mining or deep sea fishing.
Driving Record
It may come as a surprise, but many life insurance companies look at your driving record during the underwriting process. They may forgo asking you about your violations on the application, and instead directly access the Department of Motor Vehicles records to find out if you’ve often run afoul of traffic laws. Keep in mind that the last 3 to 5 years carry the most weight, so if you’ve improved your driving habits, you may improve your rate to a more favorable price.
We hope we’ve shed a bit more light into how life insurance rates are calculated. Consider these criteria when selecting your life insurance. If you’d like more personalized help to identify a plan that will meet your needs and help you get the best plan given your circumstances, please reach out to our team at InsuredTY. We’d love to help.