Premiums: How Companies Make Money Off Of Your Lifestyle Choices
Life insurance companies make money by charging a premium based on the life expectancy of the policy holder, and therefore must take several factors into account. The premiums will be determined by which risk category you've been placed in. For example, you could be in perfect health but still considered a high risk because of your job. Underwriters will determine the premium by looking at your health, job and lifestyle habits.
How Policy Holders Are Evaluated
Not all insurance companies use the exact same guidelines, so it pays to shop around. But generally speaking, insurance companies divide policy holders into either “preferred" or “standard" class, based on their risk analysis. People in the “preferred" class have a lower premium than “standard" because they are healthier and lead safer lives. Many of the contributing factors are lifestyle choices.
The most obvious factor—and what everyone immediately thinks of with increased life insurance payments—is your quality of physical health. Do you drink a lot of alcohol? Do you smoke? Do you have any other conditions like high cholesterol or high blood pressure? Are you overweight? Do you have a family history of cancer?
All of these factors contribute to the amount of payments you'll be making. Being in poor health is seen as high risk because it increases chances of diabetes, stroke, health disease, respiratory problems and ultimately, death. Companies may even temporarily increase your rates while you're recovering from surgery. A medical exam is required before you can get approved for coverage, and all of these physical problems will be considered.
Mental health is also a factor. People that suffer from mental conditions like depression could see an increase in rates due to the risk of suicide.
Even if you're in good health, your current job could increase your rates. Your life insurance rates are determined by your overall risk, so if you have a dangerous job like mining machine operator, fisherman, or logger, you'll see an increase. Office workers will save more money on the same policy as someone who puts out forest fires because of the difference in daily risk.
Don't assume, however, that if you have a dangerous job you can't be covered. Some companies deal specifically with people that face high risks in their careers.
Do you frequently travel by plane? Life insurance underwriters will likely inquire about what you do in your spare time. In the same way a risky job can increase premiums, so can a risky lifestyle. What kind of hobbies and leisure activities do you actively participate in? Mountain biking, scuba diving or anything that might qualify you for the X Games will increase your premiums. Do you have a lot of speeding tickets? Insurance companies will even look at how you drive.
Don't Try To Hide Anything
Don't hide anything from the insurance company, even if you think it might save some money; if you are dishonest about something, when the time comes for your life insurance policy to go into effect, your benefactors could see nothing.
For example, if you die doing an activity you frequently participate in but did not disclose to the insurance company, they will refuse to pay benefits. Part of getting life insurance is taking a medical examination, which will reveal any health concerns you may have tried to conceal. They'll do a test for liver function, which would indicate how often you drink alcohol, and review all medical records. Don't hold something back that could affect the rates or payout.