Term Life Insurance Rates – How Are They Determined?

Rates for term life insurance policies are determined by a variety of health and lifestyle factors. Quotes you receive from an agent or website and ultimately the price you pay for coverage are based on age, amount of coverage, length of coverage and your health rating.  When you are qualifying for coverage.  An agent will ask a series of questions to try and predict your rate.  An experienced agent should be able to identify health factors which could affect your rate and therefore accurately predict your rate.  However, health ratings are extremely difficult to predict. Most people will not qualify for preferred plus rating, especially older ages.

The health rating class will represent the risk you represent to the insurance company. The more risk you represent, the worse your classification will be and the higher your premium.

Standard and preferred had been the only term life insurance classifications and now are largely universal, although different insurance companies have their own vernacular. Still, many factors affect which underwriting classification you’re assigned.

What affects your classification?

Guidelines used to determine your term life insurance classification include age, tobacco use, height, weight, family history, and cholesterol and blood pressure levels. Other guidelines are driving record, hazardous occupation or activities, military service, foreign travel or residency, felony criminal activity, and whether you have heart disease, diabetes or cancer. Basically, if you are in good health, don’t use tobacco products or engage in hazardous activity, you’ll be charged less than someone who does.

If you engage in risky weekend activities, you’ll pay a larger premium. Likewise, if your day job puts you at risk, insurance companies will consider you a greater liability.

Although gender doesn’t affect your classification, it does affect premiums because women tend to have a longer life expectancy so they pay less for the same coverage than a male of the same age and classification.

The good news is once your classification is set, you can never be put in a higher risk category.  Alternately, if your health improves, you can reapply and potentially qualify for a lower rate class and improved rates.

Experts recommend revising your life insurance policy every few years to see if you can save money.  Sometimes a term policy is convertible to whole life, which may make sense from a financial or investment perspective.