As a responsible mortgage brokerage, we aim to keep our clients well-informed. That is why we provide guides on all the products we offer. For example, we have previously shared articles on Exclusive Life Cover and Mortgage Protection, Term Life Insurance, and Critical Illness Cover. Today, we will discuss how life insurance premiums are calculated, as we believe this information is essential for our clients.
When exploring life insurance, you may encounter the term ‘premiums’ and wonder what it means. In this article, we will explain life insurance premiums and outline how they are determined. This will help you make informed choices about your protection.
What is a Life Insurance Premium?
Simply put, a life insurance premium is the regular payment to your insurer. It keeps your life insurance policy active. This payment secures financial protection for your loved ones if you pass away during the policy term.
The premium amount depends on factors like age, health, lifestyle, and coverage type. It also considers whether the policy is term-based or whole-of-life. Importantly, consistent payments prevent the risk of losing coverage.
How Do Life Insurance Premiums Work?
With a term life insurance policy, you can select the coverage duration to match your mortgage term or until your children reach a specific age. You will pay premiums regularly, usually monthly, throughout the policy term.
Crucial Tip: To keep your life cover valid and ensure a successful claim in the future, it is essential to maintain up-to-date premium payments.
Factors Influencing Life Insurance Premiums: Several factors affect the calculation of life insurance premiums. Below, we outline ten personal factors and five policy-related aspects influencing costs.
Personal Factors Affecting Premiums
Age:
The timing of taking out life insurance affects premium calculations. Typically, the later you apply, the higher the likelihood of a claim, resulting in increased premiums. Conversely, premiums are usually more affordable if you are younger and in good health.
Health Status:
Premiums are calculated based on the medical information provided during the application. Any health condition that raises the risk of a claim may lead to higher premiums.
Family Medical History:
Your family’s medical history also influences premiums. A history of serious conditions, such as diabetes, cancer, stroke, dementia, or heart disease, may increase costs.
Weight:
Insurers consider your body mass index (BMI) when calculating premiums. According to the NHS, a healthy BMI (between 18.5 and 24.9) is ideal. Higher BMI levels may indicate greater health risks, leading to increased costs.
Smoker Status:
Smokers face a higher risk of conditions like stroke, cancer, and heart disease, resulting in increased premiums. Vaping is often treated the same as smoking for insurance purposes.
Alcohol Consumption:
Excessive alcohol intake is linked to serious diseases and a higher risk of accidents and injuries, as reported by the NHS. This can result in higher premiums.
Occupation:
Jobs that carry higher risks, such as roles in the police, armed forces, or working at heights, may lead to increased premiums if deemed high-risk by insurers.
Hobbies:
Participating in hazardous hobbies or extreme sports may also affect premiums. Insurers factor these activities into their calculations.
These factors collectively determine life insurance costs. It is essential to understand their impact when selecting a policy. Being informed will help you make confident decisions about your life insurance cover.
These factors collectively influence the cost of life insurance premiums, and it’s essential to be aware of their implications when selecting a policy. Understanding these elements will empower you to make well-informed decisions about your life insurance cover.
Factors Affecting Life Insurance Premiums: Activities, Policies, and More
When considering life insurance, it’s essential to understand the various factors that influence your premiums. Let’s explore these elements, ranging from adventurous activities to policy specifics, to help you make informed decisions about your life insurance coverage.
Activities That Impact Premium
Insurers may consider certain adventurous activities as potential risks for life insurance. Here are some examples of such activities:
- Paragliding
- Climbing
- Skydiving
- Mountaineering
- Trekking
- Caving and potholing
- Canyoning
- White water rafting
- Motor car sports
- Private or club flying
However, these activities don’t automatically prevent you from obtaining life insurance. The exact cost of your premiums will depend on several factors, such as the frequency of participation, your age, experience level, the location of the activity, and whether you’re a member of a professional body associated with the activity.
Other Personal Factors That May Affect Premiums
Mental Health: A history of mental illness or conditions like depression or anxiety may impact your life insurance premiums. Nonetheless, you can still obtain coverage, with the decision based on your recent medical history and the nature of your condition.
Location: If you intend to reside overseas for a period, factors like healthcare accessibility, armed conflict, or the prevalence of certain diseases may influence your life insurance premiums. You must be a UK resident to qualify for life insurance, meaning you have spent at least 183 days in the country over the last tax year.
Policy Factors That Affect Premiums
Now, let’s explore key policy-specific factors that play a role in determining your life insurance premiums:
Size of Payout: As a general rule, the higher the life insurance payout, the higher your premiums will be. Use a life insurance calculator to estimate the coverage amount you need.
Length of Cover: The duration of your life insurance policy can also impact premiums. Longer coverage periods increase the likelihood of a claim, resulting in potentially higher premiums.
Type of Life Cover: The type of life insurance you choose affects premium calculations and the level of protection you receive.
Some options include:
Level-term life insurance (higher premiums): Consistent coverage throughout the policy term.
Decreasing life insurance (lower premiums): Suitable for repayment of mortgages as coverage and the mortgage balance decrease.
Type of Premiums: Some insurers offer fixed premiums, guaranteeing fixed rates for the policy duration. Others may provide ‘reviewable’ premiums, subject to potential increases in the future.
Choice of Insurer: The cost of life insurance premiums may vary depending on the insurer. Consider factors beyond cost, such as exemptions for certain illnesses, additional benefits like Terminal Illness Cover, and the insurer’s reputation and ratings.
Life Insurance Extension Costs
Renewing your life insurance upon policy expiration may lead to higher premiums. As your health status may change with age, obtaining a new policy may increase costs compared to your initial coverage.
You can request changes to your existing policy or increase coverage without additional medical questions following significant life events like marriage, childbirth, or civil partnerships. Keep in mind that such changes will impact your premiums.
Understanding these factors will help you navigate the complexities of life insurance and choose a policy that best suits your needs and offers reliable protection for you and your loved ones.
Here at Connect Mortgages, we provide a complete service to help you make informed decisions about your life insurance. Our advisers can answer any questions and provide expert advice in selecting the right cover for you. Get in touch today, and let us help you secure peace of mind.
Thank you for reading our publication “Life Insurance Premiums | The Effortless Understanding.” Stay “Connect“-ed for more updates soon!
