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How do life insurance companies determine their rates?

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Author: Richard Reich

Life insurance, in fact all insurance, is based on the idea of sharing the possibility of some adverse/negative occurrence. A large group of individuals, each year, pay their small part of the total of the insurance claims so that when they die, their spouses and children (called beneficiaries) can get a large amount in relation to what they paid into their policy.

The life insurance companies are cautious and rightly so for the good of all policyholders and try not to insure (or they charge higher rates for) people who statistically, because of past medical history or riskier life style, may die ahead of time. If the insurance companies accepted these individuals who are at "higher risk" at low rates, then this could, at some point, increase the premium rates for next group of people who are in good health. The reason for this is that if claims (money paid out) exceeded money received in premiums, the life insurance company could be paying out more than they collect.

Too little money received while paying more in insurance claims could hurt the insurance company and it might even go out of business and not be there to assist the beneficiaries of the people who have life insurance with them. The life insurance company has to be sensible and far-sighted resulting in a strong financial position to serve all the policyowners.

Underwriting: By testing and studying the histories of the people who apply for insurance, the cost to the insurance consumer are kept down. This procedure of reviewing what rate is charged to an individual is called underwriting.

Underwriting life insurance is not a precise science: Each life insurance company looks at circumstances in a somewhat different way. That's where an experienced and knowledgeable advocate for your insurance comes into play - a high-quality agent - an agent that has worked with the different life insurance companies and can direct the insurance policy to the company that fits each person's circumstances and history - and has the best rate. That's where a company like http://www.lifeinsure.com comes in.

What are the underwriting concerns of the life insurance companies? ?They are looking at the kind of health concerns that one's doctor is looking for: Cigarette smoking, cholesterol above normal limits, the ratio of good cholesterol to bad cholesterol, one's weight and any medical history or dangerous recreational sport that could decrease a person's life span.

Synopsis of how life insurance prices are calculated:One's ageHealth historyGender; A female is charged less for life insurance than a male of the same age based on the fact that females live longer.The medical history of one's parents, brothers and sistersLifestyle: Do you drive race cars? Do you go to hot spots in the world? Do mountain climbing? Parachute jump?

What steps does the insurance company use to place you in a rating category? ?An extensive questionnaire is completed, sometimes by the agent for smaller amounts of insurance but usually by a medical examiner. When a physical exam is required, the insurance company pays for it along with blood and urine testing and sometimes an EKG. You give your ok to let the company access your medical records. Based on the test results and your history, the company gives you a rating class. These rating classes are called, for example; "super preferred" - the lowest in cost - and then preferred, regular or standard. Each of these groups has a different cost for your age and gender. Even if you have had some medical concerns in your history, you can often still get insurance but with an extra rate. The terminology for this extra rate is called a "rated" policy.

What if you have had an imperfect medical history? ?Again, the right person representing your interests is important. There are agents that know more than others. Even with experience, it's also important to have access to many insurance companies. A good online insurance site has access to numerous companies.

When you get a medical exam for insurance, what is done??The exam is done at your home or office. A physician, paramed or a nurse goes through a questionnaire on your history. A urine sample is taken along with a blood sample. For larger amounts, more extensive tests including an EKG or X-ray, might be done. The samples are tested for nicotine, certain medications and for illegal drugs.

How do you lower the cost of your life insurance??First, shop well. Get quotes from numerous companies. You can go to a quoting engine, such as http://www.lifeinsure.com and get anonymous and instant life insurance quotes online.

What are some things you can if you have a medical history and want to see what life insurance would cost? ?Be complete and truthful to the insurance agent about your history when you talk with the representative. As experienced professionals, we are aware of which insurance companies have lower insurance rates for different conditions. Often, we can find a company that looks at a situation vastly different than others to your advantage.

If I get charged extra for my life insurance because of health problems or if quit smoking cigarettes can I lower my life insurance cost later? ?In years to come, if your health improves (or if you are a smoker and quit for a few years), we can contact the insurance company on your behalf and ask the life insurance company will lower your rates. It can't hurt your existing policy to do this since the policy you have can't be changed once you have it but you could lower your costs.

About the Author

Richard Reich is the author of The Life Insurance Blog at Lifeinsure.com and The Disability Insurance Blog at Protectyourincome.com

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