subject: How Are Life Insurance Premiums Calculated? [print this page] A life insurance premium is the amount of money that you will be charged by your insurance company for life insurance coverage. Since baseline premiums differ from agent to agent, it's important to shop competitively for an affordable life insurance premium that will provide the right coverage for your household.
To better understand the quotes that you receive for life insurance, it helps to explore how life insurance premiums are calculated based on the following factors:
1.Mortality Charges: Mortality expenses will be billed to a life insurance company to cover the risk of mortality in the policyholder. As a result, mortality charges in a life insurance policy will vary greatly depending upon the insurance policy amount and the age and health of an individual. The older that the policyholder is, the higher the mortality expenses - which will raise a life insurance premium considerably.
2.Administration Fees: All insurance companies have to factor in basic administration and sales fees that are needed for daily operation. This amount will be lumped into a life insurance premium to cover sales and marketing fees, agent commissions, and the overhead needed to keep company doors open.
3.Savings: A portion of a life insurance premium will be invested by an insurance company into government securities, money market instruments, and bonds. This investment will provide some return that an insurance company will use to pay back a policyholder through the maturity amount in a policy, as well as bonuses, when applicable.
While the above components go into the standard price of a life insurance policy, an insurance agent will assess a number of factors to make up a basic quote, which may include:
Medical exam to determine overall health.
Life insurance application to find disclosed genetic diseases, Medical Information Bureau reports, and motor vehicle records.
Ordered medical reports, if necessary.
Once this information has been gathered in its entirety, a life insurance underwriter will determine a policyholder's risk score to provide an estimated premium. Of course, it's important for you to understand when shopping for life insurance quotes that a quote can differ from a final premium since it is a guesstimate at best.
If you are in a high-risk category when it comes to your health, you may have to pay more in life insurance compared to an individual of the same age who is in perfect health. By eliminating a number of unhealthy lifestyle choices, like smoking and excessive weight gain, you can help to improve your health assessment to lower your life insurance rates considerably.
Even if you have already received a set premium based on the state of your health, you can provide proof of health improvements to your insurance company to try and lower your life insurance rates. While an insurance company can never increase the amount of your insurance premium, eliminating risk factors to improve your health over the long term may help to decrease the amount that you pay for life insurance.
For specific questions on how to lower your life insurance premium, contact your Austin Insurance agent to find out which proactive steps you can take.
by: Dawn M. Price
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