12 Factors That May Affect Life Insurance Costs

12 Factors That May Affect Life Insurance Costs

Life insurance is one of the best ways to ensure your loved ones are protected and financially taken care of when you pass away. Numerous factors affect life insurance costs, including your health, age and lifestyle. To help you understand what might impact your eligibility and policy rates, it’s helpful to understand some of the factors insurance companies typically look at when considering you for a policy. It’s also important to consider reviewing your life insurance policy after these key moments.

Here are 12 factors that can affect life insurance costs:

1. Age

One of the biggest factors to influence the cost of your life insurance policy is your age. The younger you are, the less you’ll likely have to pay for life insurance. This is because younger policyholders are less of a risk for insurance companies to insure. Older policyholders are less likely to outlive their policy or pay for a permanent life policy before death, so younger applicants often get lower rates. 

12 Factors That May Affect Life Insurance Costs

While age isn’t the only determining factor, starting a life insurance policy sooner rather than later can help you save money on your current premium. Note that your premium will rise as you age with certain policies, though. Buying a life insurance policy in your 30s will help the cash value of your policy grow, so it’s worth considering. 

2. Gender

Generally, women will pay less for a life insurance policy than men because the life expectancy for women is over five years longer than men’s. Because women are statistically more likely to live longer than men, they’re typically given better rates. 

3. Height and Weight

12 Factors That May Affect Life Insurance Costs

Insurance companies use your height and weight to help determine your health and what your risk of developing a life-shortening condition is. Some health conditions related to your body mass index (BMI), like heart disease, high blood pressure and Type 2 diabetes, are considered risky to insure because they could lead to an early policy payout. Many insurance companies will consider your BMI when determining your risk, though this method isn’t always reliable. 

BMI uses a person’s height and weight to calculate their body fat. However, in some cases, a person’s weight can be misleading. For example, someone with a lot of muscle may have a higher body weight because of their muscle, though that doesn’t necessarily mean they’re at risk of having health problems.

Many insurance companies are aware of the occasional inaccuracy of the BMI system and use their own “build charts” to assess your health instead. These charts vary from insurer to insurer since there’s no official system or calculation, though they tend to be more lenient than those using BMI calculations. If some insurance companies are offering you high policy rates because your BMI indicates you’re overweight, consider looking for an insurer with their own build chart. Many applicants can secure more competitive rates through some insurers’ build charts. 

12 Factors That May Affect Life Insurance Costs

4. Medical History

Because your health has such a significant impact on your risk of death, it’s another of the biggest determining factors in the cost of your insurance policy. Since healthier people have a lower risk of dying during an active policy, they’ll typically receive lower premiums. To determine the risk of your medical history and health, insurance companies will often have applicants take medical exams. Your medical exam will look at nicotine use, past illnesses, prescription drug use and other factors. 

Another significant factor these assessments look at is chronic illnesses. Respiratory concerns, high blood pressure and high cholesterol are all examples of chronic illnesses that can affect the cost of your life insurance policy. Your medical history, including past and current health problems, can increase your premium.

If you don’t want insurance companies looking into your medical history or know it won’t help your premium, some insurance companies offer life insurance policies without requiring a medical assessment. However, these types of life insurance policies typically have significantly higher costs because the insurer asks for less information. While these policies may work for some people, if you’re trying to find the most cost-effective policy, look for a life insurance company that offers multiple types of life insurance policies and can help you find the best policy for your situation.

5. Family History

Even if you’re cleared of risky medical conditions, your family’s medical history can play a role in your life insurance rates.

Life insurance companies consider your family’s health history because some health conditions can be passed on genetically. Family history can give insurers an idea of the health conditions you may face. They’ll then use that health information to determine your coverage and rates. For example, if there is a history of liver disease in your family, your premium may increase because you have a higher risk of developing the same condition.

12 Factors That May Affect Life Insurance Costs

There are numerous conditions and health problems that insurance companies look for. Some common ones include:

  • Diabetes
  • Cancer
  • Heart disease
  • Kidney disease
  • History of drug or alcohol dependency
  • Alzheimer’s

Conditions like these are commonly linked to genetics, which means if a close family member has the condition, you’re at risk, as well. Most insurers will look most closely at your immediate family members, like siblings and parents, and consider their health history when determining the cost of your life insurance policy.

If your family history is complex or there are areas of concern, it’s best to be upfront with your insurance company so they can help you find the best policy and coverage. If your insurer is unable to provide an affordable policy that works for your needs, consider looking for more lenient policies and more flexible life insurance companies.

6. Smoking and Tobacco Use

Because of the high-risk health conditions associated with smoking, vaping and tobacco, even if only used on occasion, the use of these substances can potentially increase your life insurance rates. 

The same is true of marijuana use, whether you use it for medical or recreational reasons. As marijuana use is legalized in more states, some insurance companies have become more lenient in terms of coverage and policies regarding marijuana use, though it still may affect your policy rates and coverage.

All else being equal, non-smokers receive lower rates and better coverage, which can serve as a great reason to quit using substances like this. Even if you were using these substances when you purchased your life insurance policy and have since quit, your policy rates can decrease. If you no longer smoke or use tobacco products, be sure to communicate with your insurance company to find out when you’ll be eligible for non-smoker rates.

7. Occupation

Some jobs, while crucial to society, are considered riskier than others because they have the potential to impact your health and safety. High-risk occupations may include:

  • Construction workers
  • Aviation workers
  • Military members
  • First responders
  • Law enforcement
  • Oil and gas
  • Mining
  • Fisheries
  • Lumber workers 

Because jobs like these are risky positions to be in, people in these careers may find it challenging to get life insurance policies, and when they do get them, the rates are often high.

12 Factors That May Affect Life Insurance Costs

Insurance companies will be interested in your occupation if it puts you on the line every day. Insurers will also consider whether your position could lead to the development of a health condition. For example, miners are at higher risk of contracting respiratory conditions because of the daily exposure to dust and particles in the air. If your occupation exposes you to substances that are harmful to your health or involves dangerous duties, your life insurance is likely to cost more.

8. Hobbies and Lifestyle

Your hobbies and other lifestyle factors can also impact the cost of your life insurance policy. Just like certain occupations, some hobbies are considered risky and can increase your premium. 

Many adventurous activities like rock climbing, dirt biking, racing, sky diving, flying planes and scuba diving offer exciting thrills and crazy stories. However, participating in these types of hobbies can be risky for insurance companies to cover because they’re potentially dangerous situations and can result in premature payouts.

Participating in these activities once or twice for the experience likely won’t affect your premium or coverage. However, they can impact your policy rate and eligibility if you partake in risky activities regularly. 

12 Factors That May Affect Life Insurance Costs

In addition to your hobbies, life insurance companies will also look at aspects of your lifestyle. For example, many insurers will ask about your financial history and criminal records. Financial history shows your ability to make payments on your policy. Insurers often look for things like bankruptcies and may decline you coverage if you had to file for bankruptcy within a recent timeframe. Some insurers also look at credit scores and may consider low scores to be too risky to insure. 

Criminal records can have a significant impact on both your policy rate and your eligibility to get coverage. Many life insurance companies have wait periods following a discharged felony. The length of time since your conviction and whether you’re still on probation can impact your chances of getting a life insurance policy or a good rate. Be upfront with your insurance agency to find out what your options are. 

9. Driving Record

Your driving record can also indicate signs of risky behavior that insurance may increase your rates for. If your driving history shows reckless driving convictions, DUIs, a suspended license and other risky driving behaviors, the cost of your life insurance policy may be higher than without. Keep in mind that insurers are looking for factors that could lead to early payouts, so factors like your driving record are relative.

To be more specific, one or two speeding tickets likely won’t be enough to affect your eligibility, though a pattern of reckless driving is a sign that your driving behavior is risky to your safety.

12 Factors That May Affect Life Insurance Costs

10. Policy Type

Another key factor in determining the cost of your life insurance policy is the type of policy you apply for and how much coverage you get. Policy types can vary from insurer to insurer, and many offer customizable policies, so it’s important to understand the policy you’re paying for. 

There are several types of life insurance policies, and the main differences between each one are the cost of the premiums and how much the payout is. Consider these three common types of life insurance:

  • Whole life insurance: Whole life insurance is a common type of permanent life insurance, which means the coverage lasts for your lifetime, as long as payments are made. Whole life policies have two components — the cost of the insurance and savings. While your premium is guaranteed to remain the same over time, they’re typically higher than other life insurance policies. Whole life policies tend to be complicated, though they offer significant stability and consistency. 
  • Universal life insurance: Universal life insurance is another type of permanent coverage, similar to whole insurance, though universal policies tend to be more flexible. One of the biggest differences between these two types of insurance is that universal insurance can adjust to your finances. As the policyholder, you have a certain level of say in your rates and death benefit. Premiums for these policies are typically lower than whole insurance, though the rates are subject to change. 
  • Term life insurance: Term life policies are the easiest to understand, which factors into its popularity. Term life insurance is a bit different than the previous types because it only lasts for a specific number of years. So you’d pay premiums, and as long as payments are made and your policy is active, your beneficiaries would receive the death benefit if you passed away. Without the savings component that other policies have, term life insurance is one of the more affordable options. The biggest downfall with this option is that your coverage is temporary.

Every life insurance policy has its pros and cons, and there’s no one-size-fits-all policy. Consult with your insurance provider to determine the best policy for your needs and budget.

11. Length of Policy

Permanent life insurance policies will cost the most because you’re paying for life-long coverage. While term life insurance policies are more affordable in many cases, keep in mind that the length of the term can affect the cost of your premium. 

There are many lengths of time that you can have a term life policy for. For example, a 30-year term policy will cost more than a five-year term policy because you’re paying for the length of time.

Keep this in mind when purchasing a short-term policy. Be sure to consider whether you’ll end up renewing the policy or extending it, which could mean you’d be paying more over time than if you’d purchase a long-term policy to begin with.

12. Amount of Policy

The amount of policy you purchase refers to the death benefit. The death benefit is the money your beneficiaries will receive when you die, as long as the policy is active when that time comes. Your death benefit can range from a couple thousand dollars to a couple million. More coverage comes at a higher premium. 

12 Factors That May Affect Life Insurance Costs

How Life Insurance Companies Determine Rate Classes

Because life insurance companies use so much information to determine policy costs and eligibility, each company will have its own rating system with classifications. The classes are typically ranked by how preferable applicants are for life insurance. 

It’s important to remember that these general pricing factors are just that — general. Insurers consider each applicant’s information carefully to determine an accurate and fair rate. 

After receiving your application for life insurance, insurers will consider the information provided, check with third-party sources and place you in classes similar to these:

  • Preferred elite: Also known as preferred plus of preferred best, applicants in this class were ranked among the most eligible for life insurance. Preferred elite applicants are those who are in great health and are at low risk for early death. If you’re put in this classification, you’ll typically have the lowest rates and more flexibility when it comes to choosing a policy that fits your needs.
  • Preferred: Although a rank lower than preferred elite, preferred applicants are still in good health and are at relatively low risk. To be put in this class, the insurance company may find minor health problems or other factors that the insurer considers to be a slightly higher risk. For the most part, you’ll likely still get low rates and a good choice of policies if you’re put in this class.
  • Select: The select class typically indicates the insurance company had a few areas of concern. For example, you may be put in this class if you have a higher BMI, a history of chronic illness or your family history shows illnesses. Generally, these people are in pretty good health, though there are potential future risks. Overall, you’ll still be considered a good candidate for most life insurance policies, though you’ll likely have to pay more.
  • Standard: The standard classification typically means the insurance company flagged a larger number of concerns. For example, your family history may show serious problems like heart disease or cancers, or you may have your own health concerns. Applicants in this class are placed at a higher level of risk. While you may still qualify for life insurance policies, you may have a difficult time obtaining a good policy and your rates will be high.
  • Substandard: Due to high-risk jobs, history of risky behavior, significant health issues or other higher risk factors, some applicants may not meet the criteria for higher classifications. In some cases, the insurance company may approve these people for a substandard policy, also known as a rated policy. Essentially, you’ll be given some coverage options, though your rates will be higher than those in the primary rate classifications.

Overall, being honest and upfront with your insurance company is crucial. Doing so allows them to find you the best policy, coverage and rates for your needs. Keep in mind that insurers work hard to verify all your information, and misleading them can result in a denied application. With the right insurance company to help you, nearly anyone can find a policy.

12 Factors That May Affect Life Insurance Costs

Find the Life Insurance Policy for You at David Pope Insurance Services, LLC

Even though life insurance can be complicated and isn’t something you want to think about needing, it’s crucial to have so you can ensure your loved ones are cared for after your passing. You need a comprehensive yet affordable policy, and David Pope Insurance can help you find it. With more than 20 years of experience, we are creative and flexible so we can find you what your family needs. 

We help various types of families gain peace of mind by preparing for the worst. Contact our team for a free life insurance quote today.

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