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How Life Insurance Rates Are Calculated

Life insurance rates are based on statistics. You may think the insurance rate or premium you are paying is based upon what your age and the state of your health was when you first applied for the policy. That’s almost correct, but not quite. The size of your payments of course depends upon the amount of cover your policy provides, but all other things being equal, the life insurance rate you pay is determined by where you fall within one or more statistically-based populations

Age Populations – One of those statistical populations deals with age. It isn’t the fact that you’re 21 that’s important in calculating the rate, but rather how many more years you have to live, statistically speaking. If you are a 21 year old man, your remaining life expectancy should be about the same as that of any other 21 year old man. A 21 year old woman however, is expected to live several years longer, so she would pay a smaller premium.

Lifestyle Populations – If you are 21 and a heavy smoker, you fit into the population of 21 year old people who are heavy smokers. The life expectancy of this population is, statistically, quite a bit less than it is for non-smokers. Heavy smokers, regardless of their age, will pay a higher premium since their life expectancy is lower.

Health Populations – If you have major health issues, such as heart disease, diabetes, or an immune system disorder, you will be fit into one or more other statistical populations. How life insurance rates are calculated for these populations will depend upon the type of disease, the extent to which it is treatable, and whether or not it is curable. In general, anyone with one of the aforementioned diseases will usually pay more for their insurance than will a person in the same age bracket who is in good health.

When you are going through the approval process after having applied for a life insurance policy, you are in many respects being treated as a statistic. Good looks don’t count. You needn’t feel bad, or unimportant, since every other applicant is a statistic as well. Why are you being treated as a statistic? Because an insurance company is a business, and the insurance company must rely heavily on statistics and probabilities to make a profit and stay in business. The insurance company can’t calculate how long you will live. What they can do is calculate the probability of your living to a certain age, based upon what they know about you. That’s how insurance rates are determined.

We can help you with your life insurance needs and will be more than happy to provide you with a free quote. In spite of what you’ve read here, we won’t treat you as a statistic.