When it comes to life policies in Hollywood, the higher the jump, the braver the stunt, the more expensive and detailed the life insurance policy. Think The Walking Dead stuntman John Bernecker, who died after falling while on set, or Angela Bassett’s double in Vampire In Brooklyn, who fell to her death during filming. And who can forget the tragic ending of Vin Diesel’s stunt double, who was killed after falling onto a bridge during the filming of xXx. It’s understandable that higher premiums are charged for riskier lifestyles – stunt acts and extreme sports, for example – but how are premiums calculated for us ordinary beings?
Trying to figure out how your life insurance policy premiums are calculated is a smart move to help you factor the costs into your budget. It can also let you know if it will be affordable in the long run. However, the truth is that life insurers and their underwriting departments all have their own ways of calculating premiums. When it comes to life insurance providers though, the amount that you pay is based on your potential risk. Craig Baker, CEO of MiWayLife, explains how premiums are calculated.
Insurers look at risk factors to determine your premium: It is up to the insurers to determine your premium, which is normally based on a variety of risk factors. So, what are risk factors that are likely to affect you? Insurers tend to focus on anything that affects your health or lifestyle status. Typically, major risk factors that life insurance companies take into consideration when they calculate your life insurance premiums include your age, weight in proportion to your height (or BMI), smoking status and general health.
They’re also likely to consider any previous or existing health issues such as cancer, diabetes, high blood pressure, HIV or any hospitalisations or intensive medical treatment. Some companies will consider the area that you live, or the type of job that you do – a firefighter or soldier might have higher premiums than someone working in an office job, for instance.
What makes it high? Insurers focus on tailor making their life insurance policies to fit your needs. One of the golden rules when it comes to making an investment is that the sooner you do it the better. Unfortunately, there are still people that leave it until the last minute. One major influence on your premium prices is influenced by the amount of cover that you want to take out. The higher the cover, the higher the premium; a person who is taking out a life cover to the value of R1 million is likely to pay a higher premium compared to someone who is taking out R500 000 for as little as R149 per month.
What makes it low? Keeping your life insurance premiums low can be done by starting at a young age. For example, if you were to take out a life insurance cover at the age of 25 up to 30 you will get a five percent premium increase per annum. However, someone who decides to take out their policy at the age of 44 to 45 will get a 10 percent increase per annum. This also gives you better leverage because you are still at your prime in terms of your health. Making healthy lifestyle choices such as quitting excessive drinking and smoking can also work in your favour by decreasing your premiums. What you need to keep in mind is that the more you postpone getting a life cover, the higher the premiums. Furthermore, most insurers cut off the age for people who can get cover at 65 years.
Avoid the set and forget method: We all love to compare things when it comes to getting the best value for our money. We compare grocery store prices, clothing prices, and gym prices along with the features that come with it. So why don’t we do the same when buying a life insurance policy? Settling for the first one that comes your way without checking the terms and conditions is kind of like shooting yourself in the foot. Therefore, it is vital to compare your options along with the features that come with it to see if it will be suitable for you. A common trap that people tend to fall into is setting their policy and forgetting it. You may have taken out the policy while you were single without any children, but as time goes on you have children or get married. Updating and constantly checking your policy to adapt to your life circumstances is essential. It will also give you peace of mind knowing that your loved ones can face their financial future is secured.