What Is a Good Life Insurance Rate?
If you are like most people, a good life insurance rate is an affordable one. Life insurance rates, or your premium payments, are determined by the life insurance company ‘s underwriting. Underwriting basically evaluates the chance of loss that would trigger the policy’s payout if the application is accepted. The key factors underwriters analyze are mortality, interest, and expenses.
Mortality in life insurance reflects the insured’s risk of death. At the core of the mortality factor are statistics compiled by the National Association of Insurance Commissioners (NAIC), known as the Commissioners Standard Ordinary table (CSO). These statistics are a jumping-off point for your policy to be underwritten. Underwriters then take the information provided on your application and classify your risk.
Which Factors Affect Your Life Insurance Rate?
Factors that increase your chance of death conditionally increase insurance premiums. Non-smokers in excellent health and with no negative medical history qualify for more affordable life insurance policies. Insurers may ask applicants for a medical exam, and standard policy exclusions, such as operating an aircraft or having a hazardous occupation, may exclude you from acceptance.
Moreover, your age, gender, family medical history, and lifestyle affect the pricing of your insurance policy. The next factor in insurance premiums is interest. The more interest insurers can earn on your policy’s investment, the less premium they need to charge. And lastly, expenses are added to your premium’s calculation. This covers the costs insurers expect to incur, such as salaries and commissions.
The type of policy is also a consideration in your life insurance rate. Term life insurance is more affordable than a whole life policy, or permanent policy. Permanent life insurance lasts until the age of 120 and grows cash value, whereas term life insurance lasts for a specified period of time. If you pass away while the policy is in effect, the death benefit will be paid out. But if you outlive the term length, the policy terminates without a payout.
Underwriting Your Life Insurance Policy
Once insurers have gathered all your information for the underwriting process, underwriters use the judgment method or the numerical rating system to classify the risk and assign your premium. The judgment method uses only the information you provided and the underwriter’s judgment.
The numerical rating system assigns values called debits for unfavorable factors and credits for favorable factors. The debits are then added together, and the credits are subtracted. The resulting number is added to 100, and this will be the number underwriters use to determine your premium. A standard risk is between 75 and 125; ratings over 500 are uninsurable risks.
After you’ve chosen the type of policy you want and the underwriters have done their job, your premiums may be higher or lower depending on how frequently you pay (monthly, quarterly, semi-annually, or annually) and the payment mode your life insurance policy requires.