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What Factors Determine Your Life Insurance Rate?


How do life insurance companies determine premium rates for the insured? What is an actuary and what are mortality rates?

Insurance Rates Vary

Life insurance rates are not randomly chosen or increased for a life insurance company’s profits. Instead they are chosen on the basis of risk factors such as age, gender, health, and related drug, tobacco, and alcohol use. These factors are analyzed as indicators for mortality rates. Other factors also determine the rates of a life insurance. Life insurance actuaries are people who calculate life insurance rates according to these risk factors in specified groups, and based on the life insurance company’s history of length and lapses of insured policies. The determined rates are then calculated based upon these factors and risk category. This article will discuss some of these factors that influence rates.

Factors that Determine Rate Based on the Policyholder

This applies to the individual applying for a life insurance with similar risk factor categories.

  • Age - Age is a factor for mortality; as a person ages, the risks for chronic diseases and mortality increase.

  • Health - Your current health status play a part in how insurance rates are determined.

  • Medical History - Past illnesses and family medical history influence the risk group you may be in. 

  • Lifestyle - It may include your occupation, your lifestyle habits (drinking, recreational drugs, and smoking), and high-risk hobbies such as racing, skydiving, scuba, etc.

    • These may not impact rates, but could possibly add exclusion clauses to the life insurance coverage.

These are some factors but not a comprehensive list. Different insurance carriers have different factors influencing premium rates.

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Companies also consider population, product type, and length of coverage in setting rates.

Factors Companies Use to Determine Rate:

These are some company-specific factors used to calculate risk.

Mortality Projection - Mortality statistics are the primary factor in this group of company-based factors:

Mortality histories assess groups of people, not specific individuals. They can:

  • Analyze and estimate the expected number of people to die within an insurance company’s policyholders’ population.
  • Analyze and estimate the number of people within a population, and the age groups for morbidity rates.
  • Study the ranges of mortality projection for over 65 year olds to juveniles; what is the likeliness of variations for each age range within the population?
Lapse Possibility - The longevity of current and past policyholders for a life insurance company factors into the life insurance rates:
  • Based on data from past experience, insurance companies have to project how many insured people will continue paying premiums for the length of the entire whole life policy.
  • Account and project how many insured people quit paying premiums and leave their policy, and what percent of policyholders will surrender for cash.
  • The premium is what fuels the insurance company’s business. Without the premiums, insurance companies could not fund reserves and benefits for their business and insured policyholders.
  • If the insurance company determines there is a high level of probability that insured people will pay premiums consistently over a long period of time, premiums can be made more competitive.
  • The insurance company needs to provide coverage at a rate appropriate for insurers buying life insurance policies. Some life insurance companies focus on providing products for low-to-middle income families and working people. 

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Life insurance rates are a reflection of factors unique to you and the mortality rates a life insurance company uses from data and analysis. Contact a licensed life insurance Agent for more information on what your rates will be for a life insurance policy.