Life insurance provides death benefits to your loved ones, ensuring their financial security in the event of your death. If you’ve ever wondered how life insurance providers determine the premiums you pay for coverage—you should know it’s not a random number.
Policyholders may pay different premiums for the same coverage based on their health status, health history, and lifestyle. Life insurance companies consider several factors to categorize each applicant to give them the best coverage at the most affordable rate. Here are some factors that can affect how much you’ll pay for life insurance.
Table of Contents
What Is Life Insurance Underwriting and How Does It Affect You?
Life insurance underwriting is the process insurance companies undergo to determine if they can provide life insurance to you and at what rates. Underwriters may ask you to fill out questionnaires, send them your medical records, or undergo physical examinations to determine your risk tier. These tiers categorize you by health status and life expectancy.
During the process, the underwriter reviews all your information and assigns you to a group with other applicants with similar lifestyles and health backgrounds. All people in that risk group are charged a similar premium depending on their policy and coverage selections.
Certain life insurance policies skip the underwriting process altogether. These policies, however, tend to have a low death benefit (the payout to your beneficiary) for a high premium because they don’t assess risk before issuing a policy.
Your Current Health
An applicant’s life expectancy, health, and lifestyle choices are the main factors that determine how much a company charges for coverage. The younger and healthier a person is, the lower their premium.
Age and Gender
Life insurance companies assign tiers according to the applicant’s age because insurance companies consider life expectancy when reviewing an applicant’s paperwork.
A younger applicant represents a reduced chance the insurance company will have to pay out a death benefit during the policy term. In contrast, this means that an older applicant represents a higher chance that the company will have to pay a death benefit.
Companies also consider gender while deciding on an applicant’s rate. Women may see better rates because of the following factors:
- Women typically live longer than men.
- Statistically, women are less likely to engage in risky hobbies and habits.
- Women are more likely to see a doctor when they feel sick.
Because of these reasons, insurance companies often offer women a lower rate than men of a similar age.
Tobacco, Alcohol, and Drug Usage
Tobacco, alcohol, and drug use can lead to several health issues, including:
- Cancer
- Emphysema
- COPD
- Other breathing and lung diseases
All of these health conditions—among the others that tobacco, alcohol, and drug use can lead to—can directly cause early death. Companies use this information to assign applicants to a higher risk tier, or deny them coverage altogether.
Furthermore, people who were formally addicted to drugs or alcohol are considered to be at risk of relapse during their recovery. A relapse could put the applicant at a higher probability of early death. The insurance company factors this possibility in as well when evaluating the person applying for coverage.
Pre-existing Conditions and Prescription Medication Usage
A pre-existing condition is a condition a person has or had before applying for a policy. Some pre-existing conditions have lingering effects that can present health problems down the line. A stroke, for example, can leave a person with lower mobility or cognitive issues for years after the incident.
Prescription medication usage can also be a factor when deciding if an applicant qualifies for a life insurance policy. Medications with high risk of dependency and abuse, such as opioids, may cause concern for an insurance provider. Prescription marijuana indicates underlying conditions, which the insurance company will likely want to know more about.
Body Mass Index (BMI) and Cholesterol Levels
Body mass index measures body fat based on height and weight. Insurance companies use BMI as an indicator of current health and potential health issues. Of course, BMI isn’t the only factor in your healthiness—but insurance companies do factor it in to their evaluation.
Another factor is your cholesterol level. High cholesterol levels can lead to an increased risk of heart disease and stroke. Insurance companies will take your cholesterol numbers into consideration when determining your risk tier.
Pregnancy
Pregnancy has its risks, and getting life insurance while pregnant can give you and your family comfort in case of any complications. If you already have life insurance, your premiums won’t change because of your pregnancy. However, if you’re shopping while pregnant, your premiums may vary based on the trimester you’re in and if you’re having a high-risk pregnancy.
Your Health History
Insurance companies will take a look at your full health history to determine your risk tier. Past medical conditions and family history are some of the factors taken into consideration.
Past Medical Conditions
Insurance companies will look for past serious illnesses and injuries to help them determine how you take care of your health, and if you’re at risk for future medical problems. Some past conditions, such as cancer, for example, always carry a risk of coming back—something insurers take into consideration.
Family Health History
Certain medical conditions are in part caused by genetic mutations passed down by family members. Some of these conditions include:
- Cardiovascular disease
- Breast cancer
- Diabetes
- Colon cancer
- Melanoma
- Obesity
Your genetic risk for illnesses and possibly life-threatening health conditions plays a part in how insurance companies determine your life insurance coverage. If they determine you’re at additional risk because of your family history, they may offer higher premiums or deny coverage all together.
Your Lifestyle
How you live your life and pursue your passions also plays a role in how insurance companies determine your risk level for life insurance. Risky activities can be a red flag for some insurers.
Job and Hobbies
Workers in high-risk occupations such as commercial fishing, firefighting, and logging face the possibility of injury or death daily. While these jobs can be rewarding, the overall occupational risk means insurance companies are likely to place you in a higher risk tier.
Certain hobbies can have you categorized as high-risk, too. High-risk hobbies include:
- Skydiving
- Base jumping
- Rock climbing
- Race car driving
While these activities—and other similar adrenaline-filled hobbies—can be exciting, they carry a risk of injury or death.
Driving Infractions and Criminal History
Insurance companies also determine rates based on the applicant’s driving and criminal history. They will factor in driving violations, accidents, and past DUIs when deciding your risk level.
Beyond DUIs, insurance companies will review your entire criminal history, as well. Some companies will not provide life insurance to convicted felons or may offer a limited selection.
Credit History
Your credit score likely won’t play a role in how much you pay for life insurance. What can affect your life insurance premiums, however, are any major negative items on your credit history. Examples of this include past bankruptcy, regular late or missing payments, and large credit card balances.
Your Policy’s Details
Your personal policy selections will ultimately determine your premium price. Two policyholders in the same risk tier can pay drastically different premiums based on how they personalize their insurance policies.
Type of Policy
There are several types of life insurance policies, and each have their benefits depending on what you’re looking for.
A term policy, or a policy kept for a certain length of time, is generally the most affordable life insurance. It provides coverage for a set time period, and it may or may not need medical underwriting. Depending on your exact policy, you may be able to renew your term policy or switch it to a permanent one.
A permanent policy is a policy that lasts your lifetime. This type of life insurance, such as whole life or universal life insurance, is more expensive than a term policy and will likely require medical underwriting. However, these policies usually provide a guaranteed cash value that the insured can access during their lifetime for any reason they choose.
Coverage Amount
Your policy’s coverage amount is the death benefit paid to your beneficiary after you die. One common suggestions is to multiply your yearly salary by 10 for a rough estimate of how much coverage you might need.
Your life insurance coverage should correlate to the financial obligations you want to cover for your loved ones. This might include funeral costs, mortgage payments, income replacement, your children’s college tuition, and more.
Choosing either a term or a permanent policy also affects your life insurance coverage. A permanent policy has higher premiums, but that policy will likely provide other benefits than a term policy, which may only pay out the death benefit.
Additional Riders or Endorsements
Policy riders or endorsements are additional coverage options you can purchase to add to your policy for additional coverage. Common riders include:
- Accidental Death: This pays out an additional benefit if the policyholder dies due to an accident.
- Guaranteed Insurability: This allows you to purchase additional life insurance at certain ages without undergoing more medical examinations.
- Waiver of Premium Rider: This waives future premiums in the event you become permanently disabled or lose your income.
- Long Term Care: This rider allows you to take money out of your death benefit to use for long-term care.
These are just some of the common policy riders, and your insurance agent can explain what options are available to you.
Best Ways to Keep Your Life Insurance Rate Low
The best way to lower life insurance rates is to reduce your risk factors as much as possible. This means quitting smoking and adopting healthy lifestyle changes like a healthy diet and exercise routine. You should also buy life insurance as early as you can, as your rates will increase as you age.
Lastly, be sure to shop around. There may be better options for your wallet that also provide the coverage you’re looking for.