Ever wondered why life insurance companies ask so many questions? A life insurance application can be more daunting than a job interview (there are certainly more personal questions, that’s for sure). The truth is that there are a number of factors that life insurers use in determining how much you pay for your life cover. How many of those factors are in your control? A couple, and in this blog post we will look at them.
Let’s start with the factors that are out of your control:
Your age is probably the most important factor in determining how much you will pay for life cover. It makes sense if you think about it. Life insurers are taking a gamble on your life. If you are young, chances of you passing away (from natural causes, at least) are much slimmer than an older person. For that specific reason, the insurer can afford to give you a much cheaper life cover rate. As you get older, the risk of you passing away increases (that’s a no-brainer) and you end up paying more for your life cover. The idea is to grab some life cover while you are young, and while the rates are dirt cheap.
Females statistically outlive men. And because ladies have a few more years on the blokes (on average), life insurers are prepared to offer them slightly cheaper rates. It’s not a particularly massive discount on the premium, but it is a reduction nonetheless.
Now let’s look at the factors that might be in your control:
Your health & lifestyle choices
Your health and lifestyle choices are in your control, up to a point. Sure, some people are unfortunate if they have hereditary diseases. Others are more unfortunate to have picked up a serious illness like Cancer. But for the rest of us, what we choose to eat and drink, and how much exercise we commit to, on a daily basis, does influence our health. Naturally a life insurance company is very interested in your health. Healthy people aren’t great risks for life insurance companies, and if you are terribly ill, the chances of you getting life cover are slim. Bad lifestyle choices tend to sneak up on us later in life, right? We pay for our sins down the road. The problem is that for most of us, when we are in our 40s and 50s, with kids and mortgaged up to our eyeballs, life insurance is something we really need. If your health isn’t great at that point in your life, you run the risk of not qualifying for life cover, or having your premium severely loaded.
Your smoking status
Smokers are penalized heavily by life insurers – the rates can almost be double in some instances. Smoking causes Cancer and a whole bunch of nasty side effects, like raised blood pressure and heart disease. If you are on the fence about quitting smoking, consider the money you will save on your life insurance every month. Most life insurers will need a signed “non-smoker” declaration if you decide to chuck the ciggies in the bin. Some might go as far as asking you to go for a blood test to confirm you have no nicotine in your system.
Your occupation, income and education
We aren’t suggesting that you change your job, so that you qualify for cheaper life insurance rates (that would be crazy). But people with high risk jobs are at a greater risk for life insurance companies than “desk jockeys”. Aerobatic pilots, who thrill people with daring stunts, are going to pay more for their life cover than a person who is office bound the entire day. Your income is also a determining factor in your life cover pricing. Statistically, people who earn higher incomes live longer. They have access to the best medical treatment, high quality foods and a warm bed at night. In conjunction with your occupation and income, your education also plays a role in the pricing. The thinking behind that is that someone with a qualification is more likely to find a good job. If you find a good job that pays well, you will, on average, live longer that someone on the breadline.
Your marital status
You probably didn’t even realize this, but life insurers like insuring people who are married. They are hoping that by the time you are married, you would have got the “jolling” out of your system and some of your bad habits, like binge drinking and puffing on Stuyvesant blues, will be out of your system. It’s a little like short term insurers and their view on young drivers. Young drivers are more likely to be out partying on the weekends than older “toppies” who have young kids.
Some things in life you can’t control. Time is sneaking up on us all and delaying your decision to take out life cover is just going to cost you more down the line.
Responsible people make responsible decisions and today is as good a day as any to get life cover off your to-do list.
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Until next time.
The Wise About Life team