How do life insurance companies calculate my annual premiums?
There are several factors that insurance companies use to set rates. The most important factor is the likelihood that you will die, based on your age and health condition. The older you are, the more likely it is that you will die, so the more you will pay in premiums. The worse your health condition, the more you will pay. That is why companies offer a separate, and higher, premium rate for smokers. This is also the reason insurance companies make you take a physical exam when you apply for life insurance coverage–they are trying to size up your health condition in order to set your rates. An insurance company’s past mortality experience also affects the rates they charge. The fewer claims they have to pay, the lower their premiums can be. Gender also plays a role in pricing – because women tend to outlive men, they are offered lower premium rates. Another major factor in setting rates is the cost structure of the insurance company. The lower their cost of doing business, the cheaper
