If they believe that the applicant will live long and will therefore make a substantial number of insurance premium payments during his/her lives, then life insurance companies see the applicant as low risk to their business. However, if life insurance companies believe that an applicant could die soon and therefore make relatively few life insurance premium payments while they are alive, that candidate will be seen as a higher risk by the insurance companies.
How life insurance premiums are calculated
When calculating life insurance premiums, two factors are considered by life insurance companies. The first factor involves an evaluation of the general likelihood of death occurring at a particular age and involves the scaling of applicants against normal life expectancy. This sets the ‘average’ risk level that different age ranges attract; needless to say that the closer you are to your average life expectancy, the higher the risk level that you’ll be measured against.
The second factor is based on whether the applicant is above or below their average risk level for their age. Someone who has an unhealthy lifestyle, suffers from pre-existing health conditions and is in a stressful job is likely to be classified as ‘above average’. On the flip side, someone who goes to the gym regularly, does not smoke and eats a balanced diet is likely to be seen as ‘below average’. Naturally, those who are below average risk will see keener insurance premiums on their life insurance policy for their age than people who are classified as ‘above average’.
Cheaper life insurance
While there is often little we can do about pre-existing health conditions, there are ways in which to tip the scales in our favor of cheaper life insurance. This we can do by altering our lifestyle and striking a better work-life balance in a stress-free environment. Changing lifestyle habits though can be more effective for some than it can for others.
For instance, a person in their twenties living out an unhealthy existence is likely to be seen as less of an insurance threat for their age to life companies than someone in their fifties with the same unhealthy lifestyle. This is because the body of a 20-year-old will respond more efficiently to improvements in lifestyle than will the body of a 50-year-old. In essence, there are different degrees of being above average and below average, making the calculation of life insurance premiums for each individual definitely a job for the experts at the life companies.