Life Insurance Premiums: What Affects Your Policy’s Price
Life insurance serves as a contingency to protect one’s family. However, they can be confusing and dynamic, with many factors influencing premium payments at any given time. This article seeks to discuss such factors, covering everything from pre-existing conditions to family medical history and so much more.
What is a life insurance premium?
A life insurance premium is the amount one pays to an insurance provider in exchange for coverage that will pay out a death benefit to their beneficiaries upon their unforeseen passing.
The premium payment to maintain the policy is made monthly, quarterly, or annually, depending on the terms of one's policy. Insurance premiums vary widely depending on the type of policy, age, or health status.
How are life insurance premiums calculated?
Life insurance premiums are fundamentally calculated using actuarial tables that consider various factors that affect one's likelihood of passing away during the term of the policy. When setting these rates, insurance companies also consider their financial risks and business expenses.
Factors that affect life insurance premiums
The following are factors that will affect how much you’ll pay for your policy:
Type of Coverage
The type of life insurance coverage one chooses can significantly impact their premium rates. For example, term life insurance policies generally have lower premiums than permanent ones because they provide coverage only for a set period.
On the other hand, whole life insurance policies offer coverage for one’s entire life but come with higher premiums due to the guaranteed death benefit and the cash value accumulation component.
Age
One's age is another major factor that can affect the cost of their life insurance premium. Younger people are typically healthier and less likely to pass away during their policy term and hence, command lower life insurance premiums.
Gender
In most countries, women have a longer life expectancy than men and are, therefore, less likely to die during the term of their policy. They, therefore, tend to pay lower premiums.
Health
Insurance companies consider one's health status as one of the most important factors when setting premium rates. For context, one may be regarded as a more significant risk to insure and have to pay higher premiums if they have a pre-existing medical condition or a history of health problems.
Smoking
Habitual smokers generally pay higher premiums than non-smokers. This is because they are more at risk of developing severe health problems like cancer, heart disease, and stroke.
Lifestyle
Your lifestyle can also affect your life insurance premiums. For example, suppose you consistently engage in dangerous activities like skydiving or bungee jumping. In that case, you might be at a higher risk to insure and, thus, have to pay more for your insurance.
Family medical history
A family history of certain health conditions or diseases will attract higher insurance premiums as your risk of death during the policy term is higher.
Life insurance riders
Life insurance riders are benefits that can be added to one’s policy for an extra cost. Riders include things like accelerated death benefits, accidental death benefits, and long-term care benefits.
What happens if you stop paying life insurance premiums?
Your coverage will typically lapse if you don't pay your life insurance premiums. And consequently, your beneficiaries won't be eligible for a death benefit in the event of your untimely passing.
However, you can sometimes reinstate your insurance policy by making up any missed premium payments. Nonetheless, this depends on your policy terms and how long you have been without coverage.
Prudential life insurance premiums
Prudential is one of the leading and innovative insurance company in Malaysia. The company offers a wide range of life insurance products to choose from, including PRUGuard Life, PRUWith You, PRUTerm, and PRUBiz Protect.
Life insurance premiums FAQ
How does gender affect life insurance premiums?
Statistically, females tend to live longer than males and have lower mortality rates. As such, women typically pay less for life insurance than men.
What is the best age to buy life insurance?
It's never too early to purchase life insurance. But, of course, the younger and healthier one is, the lower their premiums will be.
Additionally, suppose you have dependents who rely on your income. In that case, it's imperative to consider buying life insurance as soon as possible to ensure they are financially protected if something happens to you.
Should I buy life insurance for my child?
Children typically don't have any dependents who rely on their income, so they don't need life insurance. Nonetheless, there are reasons for parents to purchase life insurance for children. This includes providing a death benefit to cover funeral costs or guaranteeing a lower premium rate for the child if they experience health issues later in life.
Are life insurance premiums tax deductible?
Yes, your personal life insurance premiums are tax deductible. You can speak to our Wealth Planner to find out more on how you can maximise this benefit.
Conclusion
All things considered, life insurance is an important investment that can provide financial protection for your loved ones if you pass away. Understanding how life insurance premiums are calculated and the factors that affect them can help you make informed decisions about your coverage. Be sure to exhaustively shop around and iteratively compare quotations from different insurers to find the best coverage and premiums for your needs.