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You Should Know How Term Life Insurance Rates Are Set

Despite what many policyholders think, term life insurance rates are not set in stone. We'll review the factors that influence premiums and the things (both large and small) that you can do to lower your cost.


This page:

Explains how term life insurance rates are set by insurers

Outlines a couple of variations on standard term policies

Describes a few (very important!) strategies for lowering the rate you earn


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Premiums can vary by as much as 50% for the same coverage and options, so it pays to get quotes from as many reputable insurers as possible.

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How Your Policy's Premium Rate Is Decided

Insurers usually divide their applicants into classes, such as "preferred plus", "preferred", "select", and "standard". What each of these categories actually means varies from insurer to insurer, but one thing is for certain: the higher your category of risk, the higher your insurance costs. As with any type of coverage, life insurance rates are a simple expression of the financial risk you pose to the insurer. Anything that increases your chance of death, (and the likelihood your insurer will have to pay out) means a cost increase to you.

The big factors are age, health, and behavior.


Your Age.

The risk connection here is easy to see, and the effect of advancing age on premiums is unavoidable. Many insurers will not offer term policies to applicant 70 of age or older, although with rising life expectancies mean policies are becoming more wisely available to applicants throughout their sixties. A term life insurance policy will always be slightly more expensive for a man then it would be for a woman of the same age.


Your Health.

One big factor will be your and your family's health histories. If you have a serious or chronic health condition, obtaining an affordable policy (or even any policy at all) may be tough. If you have a family history of such an ailment, your premiums will likely be higher as a result.

Your health "profile" will also be of interest to the insurer. To earn a preferential rating, an applicant's cholesterol levels, blood pressure, and weight should all be within the range considered "normal" although a slight elevation in any one factor probably won't matter.


Your Lifestyle.

Any high risk or dangerous activity participated in on a regular basis means higher premiums. Smoking is the big fish here. It is virtually impossible for a smoker to earn a preferential rate, even with an otherwise pristine bill of health. The good news is, quitters' rates should fall with every year they manage to stay smoke free.

Alcohol use and abuse can also influence premiums. A history of abuse or alcohol-related law violations is especially serious, but heavy drinkers with elevated levels of liver enzymes may see higher premiums too.

But "bad habits" aren't the only high-risk behaviors punished with higher rates. Frequent participation in extreme sports, such as scuba diving, surfing, paragliding, or even mountain climbing can translate into higher monthly costs..

And keep in mind that life insurance premiums will always reflect the policy's term and death benefit. The longer the term, the larger the payout, the higher the cost.


Sidebar
You may be saying to yourself: "But there is so much of this that I can't do anything about!"

Well, that may be true. But remember: your premiums are not set in stone. Compare insurers, and you're likely to find one that places less weight on what others want to make your pay more for.

Start comparing premiums and see for yourself

A few variations on the theme

Term life insurance usually comes with its death benefit set in stone. But there are exceptions. Some insurers offer term life insurance policies whose benefits vary with the policyholder's needs.

Under such a set-up, both premiums and the benefit either increase or decrease over the life of the policy. So if you know your overall debt will be either increasing or rising over time, you can tailor your benefit to reflect that. Increasing benefit policies are more expensive than conventional plans, while decreasing benefit policies are less expensive.

Some insurers also offer variable rate policies, on which the premium amount is guaranteed for part, but not all, of the policy's term. Because this probably means an increase in premiums after the fixed term expires, such policy's usually carry lower premiums.

Three steps to a lower a rate

First, the obvious. Change any behavior that makes you a high-risk investment. Lose weight, eat right, quit smoking. But we're sure you already knew that.

A less difficult "trick" to try is fiddling with your coverage details. Insurers use odd and sophisticated mathematical models to predict risk set costs. Exploit the idiosyncrasies in the system by rounding your benefit up or down to the nearest $250,000. Sometimes a large increase in coverage can be had for a little increase in premiums. And try slightly different term lengths. Some insurers penalize terms lengths that end in "5", so try rounding.

One warning: By all means, tinker. But don't under- or over insure yourself to save a few bucks or snag a great deal. Inadequate coverage won't protect your loved ones, and financially overextending yourself with a policy you really can't afford can lead to a lot of problems too.

The third, easiest, and most risk-free way to cut your life insurance costs is to shop around. Premium prices on identical coverage can vary as much as 50% from insurer to insurer. You can't lose by comparing costs.

And you can start right now at one of our partner carriers. One easy application gets you quotes from multiple insurers, and you can compare, calculate and recalculate all your data quickly and clearly. Don't put off this important protection one day longer - do it right now.










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