Having life insurance is one of the smartest ways to protect your family from unforeseen financial challenges. But it is a long commitment that requires discipline and investment of your hard-earned money on premiums.

This is why it is always crucial to understand the policy dynamics to know how much you will be paying over this period. Since life insurance premiums depend on multiple factors, how exactly are they calculated? Here’s a comprehensive list of 10 key factors that insurance companies consider while determining your premium costs.

Age:

Age has a direct relationship with life expectancy. Life insurance premiums are usually less expensive for younger people, who have a longer life expectancy and are less likely to get ill. This is why the younger you are, the cheapest life insurance premium there is for you.

Gender:

Gender is also a major contributor to the overall price of life insurance premiums. Statistically, women live longer than men, and this is why they usually have lower rates for insurance premiums.

Health:

Your health also plays a key role in determining your life insurance premiums. Applicants with certain health conditions, such as high blood pressure, diabetes, asthma, etc., are considered riskier and are more likely to expect the payout sooner. Insurance companies will examine your health by getting your medical records (upon your permission). 

Smoking:

Smoking is harmful to health. Any form of nicotine consumption, be it cigarettes, vaping, or even chewing tobacco, can push you into the smoker category, thus significantly affecting your life insurance rates.

Family Medical History:

If you have a family medical history of certain health concerns, such as cancer, melanoma, or heart disease, insurers may consider you a higher risk for these conditions and adjust your premiums accordingly. Remember that insurance companies assess risk differently; thus, it is important to compare quotes from multiple providers.

Your Hobbies and Occupation

The insurance company will examine your social profile, such as your occupation and hobbies, to determine the final rates. For instance, you’re more likely to pay higher rates if you have a risky job profile that includes hazardous activities or engage in hobbies like scuba diving, sky diving, etc.

Driving History:

Insurance companies usually consider drivers with a long history of reckless driving behaviour or a suspended license to have a riskier profile. This is why your driving record can also affect your insurance premium rates.

Criminal Records:

A criminal past can significantly affect your life insurance policy or even your overall eligibility. Suppose you have ever been involved in a criminal conviction, like murder or organised crime; you’re most likely to be rejected for insurance. It will also be dismissed if you’re currently waiting for a trial, in jail, or on parole.

Financial Difficulties:

If you’re going through a financially tough time or have filed for bankruptcy in recent years, insurance companies will term you as a riskier applicant and decline your coverage.

Coverage Length and Amount

Another major factor determining the overall cost of your life insurance is the type of policy you choose and the amount of coverage. Keep in mind that term insurance is the most affordable type of life insurance available. It provides comprehensive life coverage at affordable premiums, making it an ideal option for many individuals seeking insurance to safeguard their loved ones from financial challenges.

Conclusion

Life insurance is a major financial tool for providing financial security to your loved ones, especially those who depend on you. Several factors mentioned in this article, including age, occupation, lifestyle habits, coverage amount, etc., influence your premium rates. You can also use a term insurance plan calculator to calculate your overall policy rates before buying a plan.