How Life Insurance Rates are Determined and How You Can Save

Good job! You just recently concluded that life insurance is one of the most important things your family needs! This deserves a good job because you would be surprised how many people overlook life insurance because no one wants to talk about death or they can’t afford it. In case you didn’t know life insurance doesn’t have to break the piggy! It isn’t fair with all the million bills and other things you have to pay having to pay an expensive life insurance policy. That’s why we are here, today we are going to tell you how life insurance rates are determined and how you can save money on your life insurance rate.

How life insurance rates are determined

Finding out how much your life insurance might cost is an important calculation because you want to be sure that you have enough coverage to protect your family in the event that something happens to you. You also want to be sure that you have selected a policy from a quality company at a premium that is competitive. There are many factors that go into determining your life insurance premium, and this article will tell you what’s behind the mirror in that process. Knowing how premiums are calculated can be extremely helpful in assisting you with the quote process to get your life insurance online. If you didn’t already know, your life insurance rates are how you are going to know how expensive or inexpensive your policy will be. These are the factors that are taken in by an insurance company:

#1. Your Age

This is the biggest factor by which the life insurance carrier determines your premium. You might want to ask your agent questions about age nearest and age last. If your birthday is coming up, for example, some carriers will assume that you are that next age up, which could bump your premium. If you’re within six months of your most recent birthday, generally you might be able to backdate the policy to “save age”. In most situations, you will be responsible for paying back premium for those other months, too, so run a calculation to see if you’re within the right range to save age on your policy.
As you might expect, the younger you are, the cheaper your policy is going to be. This is because the insurance carrier uses mortality rates to “guess” the chances that you might die at any particular age (exciting job, right?). The younger you are, the less your risk, and that’s why your premiums are cheaper.

#2 Your Health

You might be surprised by the number of life insurance carriers who have taken a leap forward with regards to how they consider certain health issues. Some carriers are friendlier towards diabetes or family history of cancer, for example. Simply going through a quoting engine will not necessarily connect you with the life insurance company that provides the best value. In some situations, your life insurance risk class can be raised by as much as one or two categories just by choosing the right carrier.
If weight is an issue, you should know that carriers use height and weight tables to initially identify where you might fall. Losing some weight recently, although a great accomplishment, is not likely to convince the carrier that you’ll stay that weight or lose even more. In fact, many carriers want to see whether you’ll be able to maintain that weight for the long term, so you’ll want to be sure that you’ve kept that same weight for at least one year.

#3 Your Smoking Status

Checking off the “smoker” box on your life insurance quote is one way to spike the premium you’re quoted, but carriers view some other tobacco use a bit differently. For example, if you only enjoy a cigar every so often, you might qualify for a nonsmoker rate through Prudential. Smoking status is a lot like your weight- recent changes are not enough to convince a carrier that you’re in it for the long haul. They want to see sustained success. Some carriers want to see that you have been smoke-free for at least two years, and others like to think of one year as the marking point. If you’re within several months of hitting a major milestone for being smoke-free for two years, consider waiting until you pass that milestone to get your life insurance coverage. It could make a big difference on your bottom line premium payment.
Even if you are classified as a smoker, it’s still possible to receive life insurance at an affordable and competitive rate- you just need to look around. There are some life insurance carriers who award “fit credits” depending on other aspects of your life, like height and weight. If you can meet excellent status in these areas, you may be able to get the best possible rate class for a smoker. Simply put, doing a little research is going to help you in the process of identifying the right carrier for you.

#4 Your Lifestyle

Let’s put it this way: if you enjoy skydiving as a regular hobby, it might be a challenge to ensure you. It’s not that life insurance companies bar all activities that might be classified as “high risk”- it depends on the activity. If you love to fly airplanes in your free time or go deep sea diving on a regular basis, however, you could be looking at a costly rate class or an outright denial. As mentioned earlier, this is totally dependent on the carrier and the activity at hand. Your best bet is to work with your life insurance expert to select an appropriate company that is likely to give you the best possible rate class. In the meantime, be safe! We’re hoping you never actually need to cash in on your life insurance policy.

#5 Amount of Coverage

Remember that you can also work backward to arrive at your final premium by thinking about what your desired budget might allow you to purchase each month. Once you see this number, however, conduct an evaluation to help you determine how much this will assist your beneficiaries and make alterations from there. You might be able to save some money if you pay on an annual basis, too. Play around with the numbers to determine that you have selected a policy with the comprehensive coverage you need at a price point you are comfortable with. So many families have been saved financially by the existence of a life insurance policy- make sure that your family is protected with the coverage you need.

The different health rates you could receive

As you learned above, life insurance companies assess your health rate by determining the four factors above but what are these health ratings and what do they mean? Here are the different health ratings and what you could possibly receive:

Preferred Plus: This is like a dream rating. This health class is for those who are in perfect health and have zero family history of deaths before 60 due to illness. Not only that but you have to have a great height and weight ratio and you also have to have a clean rap sheet with no serious driving violations. You also can’t participate in dangerous activities and you have to basically pose zero risks.

Preferred: This rating is a much more common rate than preferred plus. This is common for those healthy individuals who are still ideal but have either a minor or temporary health issue. Your build should be other than ideal but not extreme and if you have a family history of heart disease or cancer prior to age 60 then you may still be eligible for this rate.

Standard Plus: Still a great rating but for people that have multiple very mild conditions and or are a little overweight. This can also apply to you if you are in good health but have a bankruptcy or bad motor vehicle history.

Substandard: Not the ideal situation for most people because this is where the company is adding a strong increase usually due to major health conditions, risky occupations, crazy hobbies or criminal record. The positive to this rate class is that it is still better than simply getting turned down for life insurance coverage. There are about 10 different table rating for the substandard category. They range from table 1 all the way to table 10, after 10 you obviously would get declined. Each table is about a 25% increase from the standard rate. We see table rating when someone is taking 5 or more medications and has some serious ailments. What’s important to remember is that if you feel like you belong in this category, you absolutely should work with a high-risk carrier. 

If you are a smoker

You will more than likely receive a smoker rate if you are a smoker. Being a smoker comes with its own set of consequences. Once this is checked off on the application the company will automatically increase your rate by about 60% but you can be listed as a nonsmoker if you quit for at least 12 months.  Some companies do make exceptions for non-smoker rates but only for those who smoke e-cigarettes, chew tobacco, or occasionally smoke cigars. If you quit smoking for at least 12 months you may be eligible for a non-smoker rate. But a smoker rate is 4 times more expensive than a nonsmoker rate so if there is any motivation to quit smoking let the prices be your motivation. Here is an example of the cost of insurance for a smoker and non-smoker.

  • Let’s take a 45-year-old male who is healthy and wants a policy for 20-years with a face value of $500,000. If he is not a smoker he will be looking at between $30-39 a month but if he is a smoker he will be looking at between $130-$174.

How to save money on your life insurance policy

For more information about if you want to learn more about getting cheap life insurance read this article of a list of cheap life insurance companies and more ways to get cheap life insurance!

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About Mack Dudayev

Mack is owner and life insurance expert at InsureChance. On a mission to create a way everyone can understand, afford and attain the right life insurance coverage to protect their financial responsibilities.

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