Buying insurance is now just a matter of a few clicks. However, understanding the insurance quotes from various insurers for similar-looking plans could be tricky. Various factors affect the premium quoted by the insurer. Insurance companies follow a simple rule of thumb, the higher the risk the higher the insurance premium. The insurance premium which in simple terms is the sum a person has to pay the company to keep their policy alive. In this blog, we are going to discuss what affects insurance premiums and how an insurer calculates insurance quotes. Before moving ahead let us tell you one thing that your attempt should not be to reduce your insurance premium rather your attempt should be to find the right insurance policy with the right amount of benefits. Don't buy an insurance policy just because it is cheap.
Major factors affecting insurance quotes from different insurers
People have different premiums depending on the different levels of risk associated with each of them. While evaluating the risk involved, insurers look at factors like age, occupational hazard, lifestyle habits, hobbies, medical records, and credit history.
Type of life Insurance Policy
The first factor that determines the premium of your life insurance policy is the type of policy. There are multiple types of life insurance policies, for example, term insurance plans, endowment plans, and ULIPs. Term plan is a pure life cover and does not carry an investment value whereas endowment plans and ULIPs plans carry an investment value. Endowment and ULIPs are mainly for investment purposes with added insurance cover. Thus, the premium for endowment and ULIPs could be higher than term insurance for the same amount of benefit.
Age of the Insured
For life insurance, age is an important factor in determining the premium. For an older age, you have to pay a higher insurance premium. Age affects the premium of every life insurance plan, whether it is a term insurance plan or investment plan from life insurers. If you buy a policy when you are young, you are going to pay a lesser premium. The older you become the premiums constantly keep rising. As premiums increase with age, it is always recommended to get your term insurance covered at a young age.
Lifestyle – Smoking & Drinking Habits
The lifestyle of a person also affects the life insurance premium which they are paying. Involvement in extreme adventurous activities and food habits that can harm your heart, lungs, or liver are part of these factors. A person who has a daily smoking habit like a chain smoker has a higher chance of having problems like lung cancer and throat cancer. In addition to that, the consumption of alcohol is also harmful to the health of an individual. Such activities reduce the lifespan of an individual. Having such harmful habits increases your life insurance quote, but you should provide the correct information as much as possible. False information may result in your application getting rejected, or in the worst case your claim will be void and the settlement will be refused.
Medical History
If you are a healthy person, you will get a standard rate for insurance premium, but if you have a pre-existing problem or have had any severe illness in the past, the premium will be high. In such cases the immunity system becomes low. Many times, insurers may ask for a health check-up report to decide the premium. For the persons having high blood pressure, heart disease, or diabetes premium charges will be high, or they might even get rejected.
Family Medical History
A person may have congenital problems which are running in the family or may have any other health problems. Due to family history, there are chances that a person is suffering from a disease. Before taking a term plan a person is asked about the genetic factors and based on the answer the premium is decided. There is a higher risk for a person having a genetic illness history and so the premium is.
Gender
A male member has to pay a higher insurance premium whereas a lady of the same age pays a lesser premium. Statistically, if all factors remain the same, women tend to live five years more than men. Also, women are less involved in risky or threatening habits and have better health habits compared to men. Hence insurance companies discriminate based on these reasons and charge a higher premium to men.
Occupation
The type of person’s occupation is also a factor that is considered in deciding the amount of premium. There are various jobs that are considered risky such as coal mining etc. In some cases, the insurance companies may refuse to issue policies where the job is very risky. The occupation where there is a lot of stress is also considered injurious and the premium charged for persons with such occupation is also high. So the riskier the job, the higher the premium.
Additional Covers (Riders)
Additional covers are useful if you are looking for financial protection. For example, adding accidental disability cover to your base term cover offers you financial support in case of disabilities as well. But adding riders to an investment plan can be expensive and may not even offer proper protection.
Tenure of the policy
The tenure of the policy is, for how many years you need to be covered or till what age you want insurance. For the longer tenure, the premium paid will also be high. Generally, your premiums are very manageable up to 60 years or 65 years of age. Once you cross 65 years of age or if you lengthen the tenure of your policy, your premiums will rise drastically. If it is more than 75 years then the premium will even be higher, so the tenure of your policy also dictates how much of an insurance premium you are going to pay.
Pay-Out Options
Nowadays, many insurers offer regular income pay-out options with term insurance plans. Your premium may go up or down once you opt for regular income pay-out. There are usually three types of regular income pay-out.
In the first one, you can pay Lump-sum + Regular Income, where Lump Sum = Sum Assured
In the second one, Lump-sum + Regular Income, where Total = Sum Assured,
Or the third option i.e., Regular Income Pay-out.
If you opt for the 1st option the premium will be the lowest of the three.
If you opt for the option premium for the third option the premium will be the highest.
These are some major factors we have discussed till now that affect the insurance premium. Consider these factors while buying life insurance. Some factors like lifestyle, policy type are in our control while some factors are fixed like age, gender, medical history. It is always better to compare the premium and coverage from various companies before finalizing. Remember the thumb rule that your aim should not be to reduce your insurance premium rather your aim should be to find the right insurance policy with the right amount of benefits. For more such useful insurance guidance read our other blogs also.
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