How Life Insurance Rates Are Determined
What determines my life insurance rate?
Life insurance rates are a function of the following personal data:
- Health class (rate class)
- State of residence
- Type of life insurance
- Face amount (death benefit)
- Age
- Sex
- Height & weight
1. Health class
Based on the mortality risk you represent, you are grouped into one of the following health classes: Best, Preferred, Plus, Standard. Below Standard are ten classes named Tables 1–10.
Each of the 14 health classes corresponds to a table of life insurance rates. The rate one is offered comes from the table (and the following data). It is not refined to exactly reflect the individual's physical condition. (Click to learn what factors determine your health class.)
2. State of residence
State of residence impacts life insurance rates by limiting the life insurance companies that are available to you. Each state sets its own regulatory laws, and while most states have similar legislation, insurers have to register in each state where they wish to do business.
3. Type of life insurance (& term of coverage)
The life insurance product you buy has a formidable effect on the price you pay. Term life insurance is the cheapest, then comes universal life insurance, then whole life insurance. Term life insurance policies with longer terms of coverage cost more than short-term policies.
Most additional features, like "Return of Premium" and "Simplified Issue," increase the price. Most riders increase the cost of the policy likewise. Contrariwise, a Survivorship policy may be more affordable.
4. Face amount
In order to purchase greater coverage (a higher death benefit), you have to pay higher premiums.
5. Age
Insurance policies on younger individuals are less expensive because the likelihood of their imminent mortality is much lower.
6. Sex
Men incur higher life insurance rates than do women because their life expectancy is lower.
7. Height & weight
Applicants whose height:weight ratio deviates from the optimum will pay a higher premium. Unfit body proportions correlate with lower life expectancy.
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