Buying life insurance is an essential part of retirement planning, but figuring out how much your premiums will cost can be tricky. The large amount of insurance options available can make the process even more confusing, but we've got you covered.
Here's how premiums are calculated.
What are Life Insurance Premiums?
An insurance premium is what the insurer charges the policyholder in exchange for coverage. Some insurers will ask you to pay your premiums every month, while others will want the full amount upfront. You can pay these premiums online or by mail via checks or money orders.
Term vs. Permanent Life Insurance Premiums
Before looking at the risk factors that could affect your life insurance premiums, let's compare both term and permanent life insurance, as these options are popular with policyholders.
Coverage Length
Term life insurance lasts for a specific, pre-set period that can range from 1-year to 30-years, whereas permanent life insurance offers lifelong protection as long as you pay your premiums. Permanent life is usually more expensive because it lasts much longer than term life.
Real Cash Value
In an attempt to level out your insurance premiums, permanent insurance also has a savings component. As you pay into your insurance, its cash value grows, and you can choose to cash out or borrow against your policy. Term life doesn't have a cash value or saving component.
Death and Convertibles
Permanent policies aren't convertible, but you can convert to a permanent policy if you start off with term life. Most insurance companies offer a death benefit if the contract or term hasn't expired before the policy holder's death. However, they have to be in good standing to cash out.
6 Factors That Affect Your Life Insurance Premiums
Insurance companies will consider multiple factors when calculating your insurance premiums. These range from age to the type of coverage you want, and other factors, like climate change.
1. The Policy Holder's Age
Age is a significant factor that affects your insurance premiums. A person who purchases life insurance in their 20s will spend way less on their premiums than someone in their 50s because the older policyholder is seen as a bigger risk. Buying insurance early will save you money.
2. Personal Information
Personal information, such as your sex, gender, claim history, credit history, and marital status, will be assessed when you get insurance. Your sex and gender are especially important, as women tend to live longer than men. Your claim/credit history is used to assess trustworthiness.
3. The Coverage Type
Comprehensive coverage types are more expensive, whereas flexible coverage types aren't as pricey. As stated, permanent life insurance is costly because of its long-term and high coverage amount. It'll also cost more to cover a person with pre-existing health conditions.
4. Current Occupation
If you work in a high-risk occupation, like agriculture, construction, or policing, you'll pay higher premiums. However, if you work a desk job or you're unemployed, your premiums will be lower. Insurers consider "high-risk roles" to be professions where you're always in harm's way.
5. Current Location
While your location may not determine your personal life expectancy, insurers will use the average life expectancy in your location to assess your personal risk. If you live in a place with a high life expectancy, you'll pay less than if you lived in a location with a low life expectancy.
6. Lifestyle and Hobbies
Insurers will check if your lifestyle or hobbies are high risk. For example, if you smoke, drink, and enjoy free climbing on the weekends, you're a "high risk" individual. If you don't smoke or drink and love to read, you're "low risk." A low-risk person will pay lower insurance premiums.
* This is a contributed article and this content does not necessarily represent the views of sciencetimes.com
