Factors Affecting the Cost Of Life Insurance

Posted in Life Insurance

January 16th, 2009

Life insurance prices, which are passed along to you, through premium rates, are determined in a variety of ways. The basic underlying principle is the likelihood of mortality. How likely is the insurance policy to generate a claim? Using tools called mortality tables, insurance companies try to predict the likelihood of a claim and determine the average life expectancy for the person being insured, based on such variables as his or her age, sex, and profession. A professional skydiver, for example, is not going to get the same life insurance quote as a desk-bound civil servant. One would be qualified for a high risk life insurance policy, while the other might choose a more affordable term life policy.

Another variable used in calculating the premium is the length of the policy, and whether it will be an investment policy that will generate interest. In many policies, companies invest your premiums in bonds, stocks, and other properties, and they assume they will earn a certain rate of return on those investments.

A third consideration is the company overhead, which is factored into the cost of the policy. By sharing the risk of one persons death over a large number of people, insurance companies distribute the risk, and also the cost, to each member of the group. Estimating such figures as salaries, rent, and basic day-to-day operating expenditures, they are able to distribute those costs and determine how much needs to be charged to cover each policys share of expenses. This process is called expense loading. This is a cost that can vary from company to company, based on that companys efficiency, the size of its operation, and the length of time it has had to accumulate cash reserves.

The type of life insurance you choose will also be a determining factor in how much you pay for your policy. Various life insurance types such as term life, whole life and variable life policies will carry different associated costs. Your life insurance is an important investment, so before you choose the cheapest life insurance, you may want to research life insurance quotes online to make sure you choose the best insurance policy for you.