What Determines Your Life Insurance Rate?
Get a better understanding of what factors into your premium.
If you’re shopping for life insurance, figuring out how your rate is determined can be a bit of a mystery. While each insurer may define and measure risk in its own way, most companies will ask for some basic information to get a picture of your health.
You can expect the following five factors to impact how your life insurance rate is determined:
- Age: Simply put, the younger you are, the less expensive your rate can be. That’s because on average, a 35-year-old man is more likely to live longer than a 45-year-old man.1
- Gender: Statistically, women as a group live to an older age than men do. As a result, rates for women are lower for the same type and amount of life insurance when compared to men.2
- Health: Your current health and past medical history can affect your rate. However, things like diet, exercise and stress reduction will also be taken into account. “Having a health condition doesn’t mean you’ll get a higher rate,” says Shiela Companie, vice president and chief life actuary at Amica Life. “For example, the potential risk posed by slightly elevated blood pressure can sometimes be offset by medication, exercise, diet and weight reduction.”
- Tobacco use: Given the proven relationship between smoking and mortality, rates for nonsmokers are lower than for smokers. Tobacco use has a dramatic impact on premiums – and if you quit, you can get a better rate. “Depending on how much time has passed since you’ve quit and your other health conditions, you could qualify for a nonsmoker rate,” Companie says.
- Hobbies: A passion for hiking or bird-watching won’t affect your premium. But if you’re into more daring leisure pursuits – skydiving or scuba diving, for example – you may see a higher premium.
If you make a change to your lifestyle after purchasing life insurance, you should connect with your insurance company to see if your premium can be adjusted. “Once your policy is in effect, make sure to let the insurer know if your profile changes for the better,” says Todd Oster, assistant vice president at Amica Life. “If you don’t smoke for a certain period, we can reassess your rate and make an adjustment.” The same thing applies for improvements in your health, such as weight loss, reduced blood pressure or lower cholesterol, to name just some examples. “If you can come back to us and show that a risk has been diminished, we’re always willing to take a look at that,” Oster says.
“Once your policy is in effect, make sure to let the insurer know if your profile changes for the better.” – Todd Oster, Amica Life.
Another factor that plays into your life insurance rate is the amount and type of coverage you’re shopping for. Generally, as the amount of coverage you need increases, so will the rate for that coverage. For example, if you’re shopping for a $500,000 policy, you’ll see a different (typically higher) premium than when shopping for a $250,000 policy.
Also, the type of policy can factor into the cost. Term coverage lasts for a set period of time, typically 10, 15, 20, 25 or 30 years. After the term expires, so does the coverage. Permanent coverage (whole life is the most common type) lasts for your lifetime as long as the policy payments are made. Generally, the longer the term of coverage, the more expensive the policy. A life insurance specialist can help you understand the difference between term and whole life insurance, and which types of coverage are best for your needs.
Beyond the Basics
If you’re comfortable with your initial quote, you’ll start an application for coverage. While some insurers may require you to meet in person or speak over the phone, Amica Life offers the convenience of applying online in most cases. However, you can contact a life insurance specialist to assist you at any point.
After your information is submitted, it will go through the underwriting process, when you may be asked more detailed questions to ensure you’re getting the best and most appropriate rate. For most types of coverage, the premium is guaranteed for the term purchased or life of the policy. That’s why life insurance companies will collect as much information as possible when determining your rate.
Lastly, a life insurance specialist will contact you to confirm if coverage can be offered and at what rate.
In all cases, whether you’re initially shopping for life insurance or revisiting your policy, make sure to answer the questions fully and accurately. Withholding or downplaying relevant facts in the hope of getting a better rate could impact future claims. Ultimately, complete and accurate information on the application will go a long way toward providing the peace of mind you’re seeking by purchasing life insurance.
- Retirement and Survivors Benefits: Life Expectancy Calculator, Social Security Administration, 2019.
- Top Benefits of Life Insurance for Women, The Balance, 2018.
ALIC48119 (exp. 6/20)