How Life Insurance Rates are Determined

Most people understand the need for life insurance to ensure that loved ones are protected in the future. The process of learning about life insurance and shopping for the best rates can be daunting, however. One thing that many people find helpful in this process is to learn about the specific factors that affect life insurance rates. Once you have an understanding of how life insurance companies price their life insurance policies, you will be more confident that you can find the lowest life insurance rates for your purchase.

In general, the price of life insurance is tied to the policyholder's life expectancy and risk of dying. To come up with this estimate, an insurer will look at a number of factors in order to assess the risk associated with an individual.

Age is one of the most straightforward attributes that insurance companies examine. Younger applicants receive lower cost life insurance since they are more likely to live longer, which puts off the insurance company's payment of the death benefit.

Insurers also look at the marital status of the applicant; studies have shown that married people tend to live longer than singles, and they also are more likely to be healthier. Part of this may be due to living with a loved one who is looking out for their partner's health and well-being.

The state of the applicant's health plays a big part in how much the insurance company will quote for life insurance rates. Obviously, the healthier the applicant, the lower the rates they will pay. More specifically, the factors that insurers examine to determine a person's health status include whether they smoke, if they are at an appropriate weight for their height, if they have any chronic illnesses or conditions, and if they lead a sedentary lifestyle.

Occupation also plays a part in how the insurer calculates life insurance rates. Risky occupations lower an applicant's life expectancy, so insurers set higher life insurance rates for people in risky occupations. Likewise for applicants who participate in sports and hobbies that are deemed to pose a greater risk, including scuba diving and skydiving.

One factor that insurers use to determine life insurance rates that surprises many people is the applicant's level of education. Studies have determined that the more educated a person is, the longer their life expectancy. This means that if an insurer issued policies to two applicants of the same age, health, and other criteria, the one with more education would receive lower life insurance rates.

There are ways that you can find the lowest life insurance rates; all it takes is a willingness to invest your time. Be prepared to shop around; the life insurance business is competitive, so make sure to obtain quotes from several insurers before you make a decision.