How is the Premium for Life Insurance Determined?

premium for life insurance

How is the Premium for Life Insurance Determined?

Have you wondered how premiums in life insurance are determined? Whether you have a family to provide for or your income depends upon as the only income, you can purchase insurance based on the amount of risk you’re comfortable with. Every person has unique situations and circumstances that may impact their policy coverage, which affects the premium that you will pay.

Several factors can help you make a more informed choice on the type of life insurance you wish to purchase and understand how your premiums might be affected.

Your Deductible Level

Your deductible may be a factor in determining the rate of your annual premium. For a covered loss, the deductible is the amount that you’ll pay out of pocket before your insurance benefits kick in. This is the dollar amount that you’re required to pay toward a covered loss. As per the National Association of Insurance Commissioners (NAIC), the higher the deductible you select, the lower your premium will be. This implies that, for example, if you have a $5,000 deductible on a $500,000 worth of death benefits, characteristically, your policy will pay you $495,000 as a payout.

Your Insurance History

Previous insurance records can affect the types of coverage you can purchase as well as your premium levels. This history may relate to the following:

❖      The frequency of your claims

❖      Your Insurance Score (linked to your credit history)

❖      Whether you have continuous coverage (few or no periods without insurance)

For instance, if you have a record of misinformation on your health status, this could affect your insurance score, and you may be paying even more premium for life insurance.

Your Policy Type

The cost of term life is different from that of whole life, and so is the premium. The cost of whole life insurance could be the best for your needs, but you might prefer to research a little for term life insurance to compare their premiums and benefits provided. For example, a healthy 20-something might be able to buy a $1 million 20-year term life insurance policy for $500 a year. A smaller policy of about $250,000 might cost just $15 or $20 a month. In comparison, a whole life insurance policy could cost $9,000 more per year for the same $750,000 in coverage as a term policy. When such a big disparity occurs, buying term life insurance coverage may be saving you on a premium for life insurance.

Your Home Type

The type of house you are living in can also be a determining factor in your premium. The materials used for constructing your house and the age of the building are among the factors that may influence premium costs, the Insurance Information Institute (III) says. Your insurance risk increases if your home has a staircase, which may reflect on your insurance premium.

Your Location

Your location could also affect the amount you pay as a premium. Another important factor used to define the price of policies is the kind of claims that have occurred in your neighborhood. The III also says that things that are more specific to your home’s location, like how close your home is located to a fire hydrant and whether a professional or volunteer fire department serves your area, can affect your premium. Also, III says that geographical location, including proximity to the coast, whether your house is in a flood-prone area, etc., may also be a factor in your insurance premium.

How insurance premiums are determined can be puzzling. However, these tips will help inform you about how premiums for life insurance are determined.  If you’re looking for life insurance at the best rates and optimum benefits, contact the Club Agency Insurance Brokerage experts in Garden City, New York, today. Our insurance experts are always there to assist you with all your coverage needs.

COVID-19 Update:

At RMS and associated firms, business continues as usual. Our staff is remote-capable and available to handle all partners, brokers, and insureds at the present time. Contact us today!Executive Order for Policyholder Payments