For many people life insurance is an absolutely essential purchase. Workers with a family to support will need to find a way to protect their loved ones in the event of their untimely demise. When the breadwinner dies unexpectedly the entire family can be thrown into turmoil, leaving those behind wondering how to pay the bills, pay off the mortgage and put the kids through school.
Life insurance coverage is designed to address these concerns and provide those loved ones with the funds they will need to carry on the absence of their loved one. Upon the death of the insured a properly structured and well chosen life insurance policy will be able to provide those needed living expenses, reliving the family of a significant financial burden in their time of need.
Of course all the life insurance in the world is useless if the premiums are not affordable. There are many ways to keep the premiums on life insurance affordable, including choosing term life insurance, which provides only a death benefit over more costly whole life. Another way to keep those premiums under control is to gain a good understanding of how life insurance premiums are calculated. By understanding how life insurance companies arrive at their premiums, applicants can get the most coverage for their money and still provide their loved ones with the protection they need and deserve.
While different life insurance companies will use different formulas to arrive at the premiums they charge, all insurance companies employ specialized mathematicians known as actuaries. Actuarial science is a difficult subject, and those who do well at this special craft are
well versed in statistics and mathematical calculations. The actuaries employed by the life insurance firm uses a number of statistics analysis, including death records, health statistics and more, to calculate the risks faced by the firm. These analyses are then used to arrive at the premiums.
In addition to the specialized mathematics involved, life insurance premiums will be influenced by a number of factors, including:
The Age of the Applicant
The age of the life insurance applicant will obviously play a role in the premiums charged. It just stands to reason that it will cost less to insure a 20 year old than an 80 year old. Young and healthy applicants will typically get the best rates, while older applicants will generally be asked to pay a bit more.
Health (or Lack of It)
The health of the applicant also has an important role to play. Applicants who are in good health can expect to pay far lower premiums than those who have had significant health challenges in the past. In fact many life insurance companies will require those taking out a new policy, or significantly increasing their level of coverage, to submit to a health examination.
The lifestyle of the applicant can also have a big influence on the premiums paid. This is especially true for lifestyle issues that increase risk of death, including things like tobacco use, excessive drinking and dangerous sports or occupations. All of these lifestyle factors will go into the mix and play a role in the type of life insurance coverage offered and the premiums that must be paid.