If you have an insurance policy, you might wonder how companies calculate your insurance premiums. You pay insurance premiums for policies that cover your health and also your car, home, life, and other valuables. The amount you pay is based on your age, the type of coverage you want, the amount of coverage you need, your personal information, your zip code, and other factors.
Here’s no set cost for insurance premiums. You could have the same car as your neighbor and end up paying more (or less) for insurance even with the exact same coverage. It pays to shop around and compare prices and policies.
There are numerous factors that determine the life insurance premium rates, as follows:
- Earnings from investments: Since paid premiums are used to pay life insurance claims, the earnings from these investments are important from the company’s point of view.
- Mortality Rate: The age of the insured will determine the predicted mortality rate of that particular age group. This is the most crucial factor for deciding the insurance premium. The younger the individual, the more likely that insurers are likely to offer a better rate of premium as the chances of a claim being made are less.
- Coverage or Sum Assured: The greater the amount insured, the higher will the premium that you would have to pay.
- Personal habits and Health Record: Unhealthy lifestyle habits like smoking, alcoholism etc. will result in a 30% to 70% higher premium charged by life insurance companies in comparison to individuals leading a healthy lifestyle.
Error-free: Since the calculation of insurance premium is automated with the use of a life insurance calculator, it is less prone to errors as compared to manual calculations.
Easy Calculation: A life insurance calculator allows you to calculate how much premium you would have to pay easily, without the hassles of manual calculation.
Compare and Contrast Between Various Premiums: This calculator enables users to compare between the premiums being offered by various insurance companies. This will further determine which are the most suitable plans for you and your family, by weighing the premium amount and the time period for which you will be required to pay it.
Determine the Exact Amount: The life insurance calculator helps to determine the exact coverage that you would need to assure the safe financial future of your kith and kin.
Factors for Calculation Premiums
Actuarial tables. Most insurance companies employee actuaries, who are business professionals that assess the risk of financial loss using mathematics and statistics to predict the likelihood of an insurance claim, based on much of the aforementioned criteria. They typically produce something called an actuarial table that is provided to an insurance company’s underwriting department, who uses the input to set policy premiums.
Personal information. Depending on the type of insurance you’re shopping for, the insurance company may take a close look at things like your claims history, driving record, credit history, gender, marital status, lifestyle, family medical history, health, smoking status, hobbies, job, and where you live.
The amount of coverage. The less coverage, the cheaper the premiums no matter what you’re insuring. If you buy health insurance, for example, you’ll pay lower premiums for the same type of coverage if you have a higher deductible and higher out-of-pocket maximum.
The type of coverage. In general, you have several options when you buy an insurance policy. The more comprehensive coverage you get, the more expensive it will be. For example, if you have an auto insurance policy that covers liability only, it will be cheaper than if you have a plan with collision, comprehensive, liability, medical payments, and uninsured/underinsured motorist coverage.
Age. Insurance companies look at your age because that can predict the likelihood that you’ll need to use the insurance. With health insurance, younger people are less likely to need medical care, so their premiums are generally cheaper. Premiums increase as people age and have a higher chance of needing more medical services. And teenage drivers are still working on building experience, so they’re more expensive to insure. Likewise, older drivers who tend to have slower reflexes will also pay more.