How to Calculate Term Life Insurance Premiums
The insurance business is about calculating and properly mitigating risk. Understanding those risks will help you understand what goes into underwriting your policy. Insurance premiums are impacted by a number of factors including age, gender and the overall health of the insured. Keep these basic factors in mind when purchasing your term life policy.
Often referred to as temporary insurance, term life insurance is so named because it expires after a specified period of time. Term life insurance is different from whole life insurance because it does not build cash value, and is not tied to an investment product. These factors make it much more affordable as compared to whole life. Once the policy term is up, the policy expires just like the term for an auto or homeowner's insurance policy. There are a few main factors in determining the premium of your term life insurance policy.
- Consider your age. Insurance is about mitigating risk, and the insurance premium for your life insurance policy is determined by the risk that you will die. Term life insurance premiums are relatively cheap until you reach age 50, assuming that you are in relatively good health. It is very difficult for people over age 65 to acquire term life insurance because of the increased mortality rate. Purchase your term life insurance policy at a young age to lock in low premiums.
- Consider your gender. It is a statistical fact that women live longer than men. This statistical probability translates to men paying higher life insurance premiums than women. Insurance companies use massive databases and charts in order to set their premium rates.
- Consider your health. As life insurance is based on the likelihood of the insured’s death, the general health of the policyholder is certainly a factor in determining the premium amount for the policy. Factors such as tobacco usage, alcohol or drug abuse, existing medical conditions, and weight influence the health class that the insurance carrier will place you in. Your health class will help determine the amount that you will ultimately pay in monthly premiums.