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LIFE Insurance
LIFE INSURANCE INSIGHTS

Life insurance companies assess your risks when deciding whether to insure you and how much to charge. They use a wide range of factors to evaluate the risk -- especially for a term life insurance policy.

Life insurance companies assess your risks when deciding whether to insure you and how much to charge. They use a wide range of factors to evaluate the risk -- especially for a term life insurance policy.

Prices for term policies have been particularly competitive over the past several years, especially for the healthiest people. Insurers tend to have several rate classes:

  • Super preferred
  • Preferred
  • Regular plus
  • Standard or regular
  • Higher "table rates" for people with health conditions

You must meet stringent criteria to qualify for the preferred rates. The requirements aren’t just based on your health. Insurers explore other areas of your life that could increase your risk of dying early.

"In order to get rates that low, companies have worked hard to do better at figuring out mortality," says Robert Gleeson, medical consultant for the American Council of Life Insurers.

Life insurance companies don’t gauge risk the same. Gleeson says some insurers perform minimal underwriting and charge a higher price, while other companies are more diligent about underwriting.

KEY TAKEAWAYS
  • During the life insurance application process, companies usually perform underwriting to check on an applicant’s risk.
  • A person’s age, health, and smoking status are three ways that life insurers use to provide life insurance quotes.
  • A policy’s type, length, and coverage level also influence how much you pay in premiums.
  • A person’s hobbies, driving record, family history, and a criminal record can also play a part in an applicant’s approval and life insurance quote.

Let’s take a look at 13 factors that affect life insurance quotes:

Your age

Age makes the biggest difference in your life insurance premiums and often affects how many follow-up questions the insurer asks. The younger you are, the less likely you will die soon. Someone with an expected shorter life expectancy will pay more when they buy life insurance.

Here are the average annual premiums for a $500,000, 20-year level term life policy for a nonsmoking man in excellent health (Preferred Plus classification):

  • 30 years old: $405
  • 40 years old: $623
  • 50 years old: $1,471
  • 60 years old: $4,065

The insurer may also ask fewer questions if you're younger and applying for a smaller life insurance policy.

"A 30-year-old applying for a $100,000 policy may be a simple nonmedical form with a few questions about height and weight, smoking history and no blood or urine and you're done," says Gleeson.

Your gender

Premiums are usually lower for women than they are for men because their average life expectancy is longer.

Let’s take a look at the same average annual life insurance premium for a $500,000, 20-year level term life policy, but this time we’ll compare the cost of life insurance for a nonsmoking woman in excellent health (Preferred Plus classification):

  • 30 years old: $336
  • 40 years old: $516
  • 50 years old: $1,114
  • 60 years old: $2,873

As you can see, a woman can pay hundreds less annually on average for a 20-year policy.

However, for group insurance, men and women usually pay the same rates, says Rob McGee, senior director of absence and disability management for Willis Towers Watson, a benefits consulting firm.

If your employer gives you the option of purchasing life insurance at group rates, compare the premiums to the cost of getting coverage on your own.

Smoking status

Smoking makes a big difference in your rates because of the impact on mortality. Smokers can pay twice or three times more than what it costs a nonsmoker.

"Smoking more than doubles your mortality, regardless of age," says Gleeson. "It's a pretty important factor."

Here are the average annual premiums for a $500,000, 20-year level term life policy for a woman who is a smoker and deemed as Regular or Standard health:

  • 30 years old: $974
  • 40 years old: $1,801
  • 50 years old: $4,012
  • 60 years old: $9,066

If you’re a smoker, you may be able to get a more affordable policy if you have a group life insurance coverage option, such as through your job. Some group policies don't charge more for smokers if they're approved for coverage, says McGee.

Medical history

During the life insurance application process, the insurer will look at your medical records and review your personal health history.

"If the person had a heart attack and a stent put in, no heart damage, rigorous control of cholesterol and blood pressure and seeing their doctor regularly, the insurer will look at that very favorably," Gleeson says.

Your medical history affects your rate, but the specifics vary drastically by insurer. The impact can change over time.

"As medical advances take place, life insurance companies change how favorably they view things," says Jones.

Insurers aren't so quick to deny for health problems

Medical conditions that once caused an automatic rejection aren't as much of a problem now. They still affect your life insurance premiums, though.

"Medical histories that at one point would have not allowed a person to get insurance, now you have the potential of being covered," says Joel Jones, vice president and chief underwriter for Mutual Trust Life Insurance in Oak Brook, IL, and a Society of Actuaries volunteer.

For example, insurers once declined anyone who had Hepatitis C.

"But now it's something that's insurable because of new treatments and new medications. It's not a stagnant industry, and what was true even a couple of years ago is not always true today because of medical advances,” says Jones.

Another previous automatic denial was if someone had a heart attack.

"They weren't going to take a risk on you," says Gleeson. "But as we have learned more medical information, we've been able to stratify heart attacks."

Insurers also previously often rejected people who had cancer. However, insurers now request more information about the specifics of their disease and treatment.

"It depends on the type of cancer, how recent it was, and what the pathology report is," he says.

Insurers can have different guidelines based on their experience and research, so it helps to shop around with multiple companies if you have a medical issue. One insurer may reject you, while another may offer a competitive rate.

Cholesterol and blood pressure

Your cholesterol and blood pressure affect life insurance premiums, too.

The cut-offs can vary by company based on their own experience. According to MassMutual’s MyLifeScore calculator, insurers generally look for a:

  • Normal systolic blood pressure -- 100-129 mm/HG
  • Diastolic blood pressure -- <80 mm/Hg
  • Normal cholesterol -- <200 mg/dL

Controlling your high blood pressure or cholesterol through medication can help get you approved and pay a lower rate, says Gleeson.

Height and weight

Height and weight are important because it determines your body mass index (BMI).

"Build is a significant factor, especially if you're talking about Preferred and Preferred Plus rates because your height and weight do have a potential effect on mortality," says Jones.

People with a high BMI can end up having other medical problems. However, Jones says insurers have relaxed their height/weight requirements over the past few years. Insurers are generally looking for a BMI of 20 to 25 for the Preferred and Super-Preferred rates, says Gleeson.

Family medical history

Insurers generally want to know whether your parents or siblings died before age 60 from heart disease or certain types of cancers, such as colon cancer, breast cancer or prostate cancer, says Jones.

They aren't as concerned about whether your family members died of these conditions when they were older.

Motor vehicle record

Life insurers review your motor vehicle record, but in a very different way than car insurers. Jones says life insurance companies are looking at mortality risk when they review a driving record.

"If you see someone with a DUI, that's an indication of a higher mortality risk than someone who does not. Generally speaking, minor vehicle infractions aren't considered significant, but major traffic violations are generally taken into account,” Jones says.

Hobbies

Most hobbies won't make a difference, but dangerous hobbies can affect your rate.

"If you like hang-gliding, base-jumping or running with the bulls in Pamplona, there's a chance you'll face higher premiums than if you didn't engage in such dangerous activities," says Jack Dolan, vice president of public affairs for the American Council of Life Insurers. "That's because there's a clear relationship between these activities and deaths that would otherwise occur if you did not participate in them."

The insurer is likely to ask for more details if you mention a risky hobby on your application, such as mountain climbing.

"If they just go hiking in Vermont, that's not really going to factor into the underwriting decision," says Jones. "But if somebody is ice climbing and requires special gear or climbing Everest, those present a different type of risk and would be taken into account."

Travel

Travel only affects your rates if you travel to very risky areas.

"For example, a person who travels to a part of the world riddled with trouble and violence puts themselves at risk," says Dolan.

Last year, many life insurance companies temporarily pulled back on issuing policies to people who had traveled to high-risk COVID areas before the virus was as prevalent in the United States. Otherwise, Jones says that foreign travel isn’t a big underwriting factor now if it isn’t deemed risky.

Coverage amount and length

A policy’s amount and length of time, if it’s a term policy, play a role in life insurance rates.

How much coverage directly affects the policy’s cost. Someone will pay higher rates for a $500,000 policy than a $250,000 policy and spend more for a 20-year policy than a 10-year policy.

Here are the average annual premiums for a $500,000 level term life policy for a nonsmoking 40-year-old man in excellent health (Preferred Plus classification):

  • 10 years: $357
  • 20 years: $516
  • 30 years: $790

An insurance company must consider the sum of death benefits covered by a policy, usually referred to as its "face value," against the length of the term. The longer a term’s length, the more likely an insurer will have to pay out a death benefit. So, they charge higher premiums for longer term life insurance policies.

Coverage type

Insurers offer many types of life insurance policies, but they may be generally categorized as either:

  • Term policies
  • Permanent policies

Term life

Term policies cover a specific period, commonly lengths of 10, 20 or 30 years. During that time, the insured pays annual premiums to maintain the policy. Should the person die while the policy is in effect and in good standing, the life insurance company pays predetermined sums of money, known as death benefits, to the policies' named beneficiaries.

If you die after the term has expired, the life insurance company isn’t liable for payment of any death benefits. Instead, the company retains the sum of premium payments that were paid over the term of the policy -- unless it’s a return of premium policy, which gives back the premiums at the end of a term life policy.

Broadly speaking, because insurance companies can reliably expect to receive your premium payments for a term policy but won’t be liable for any benefits once it expires, term policies are less expensive than permanent life insurance policies.

Permanent life

Permanent policies like whole life and universal life differ from term policies in that they offer coverage with no predetermined length of term. Instead, these policies provide you with coverage until your death.

The other defining characteristic setting permanent policies apart from term policies is that they include a cash value component. As you make your premium payments, the insurance company applies a portion of the money toward its cash value.

This lets you accrue equity in the value of the policy, which may be accessed or leveraged while you’re living. The cash value may earn interest, and some policies pay dividends. These earnings aren’t taxed and may be reinvested, used to pay premium costs, or obtain additional coverage.

The life insurance company upon the policy holder's death retains the cash value component of a permanent policy and pays out only the death benefit. If you surrender the policy before your death, you give up the death benefit but will be paid the balance of the policy's cash value.

Given that there’s no term limit on a permanent policy, its beneficiaries are effectively guaranteed to receive payment of benefits upon your death (less any outstanding loans or other liabilities due to transactions you made per the terms of the policy). All this generally adds up to permanent policies being comparatively more expensive than term policies, even though permanent policies tend to provide lower death benefits than term policies.

Criminal record

If you have a criminal background, you may feel some trepidation about life insurance and be bracing yourself for costly coverage. You may even presume you’re not eligible for life insurance at all, but this is not necessarily the case.

It’s generally advisable if you have a felony conviction or are someone who has been charged with a felony to wait some length of time -- at least a year, if you can -- before you try to obtain life insurance.

Insurance companies consider people with criminal histories, particularly felons, a higher risk for several reasons, not the least of which is that the data they use indicates that people with criminal backgrounds tend to die earlier than those without them.

If you’re charged with a felony and pending trial or are currently incarcerated or on probation, you generally shouldn’t apply for life insurance, as the insurance company will automatically deny the application.

You must and should be completely honest when applying for life insurance. Insurance companies run a comprehensive background check for applicants. If you’re found to have lied or withheld information, the company automatically denies your application. Moreover, that dishonesty severely limits your chances of another company even considering your application.

People with a criminal background are encouraged to consult a life insurance broker before applying for coverage.

Joe Cunningham, CLU and sales vice president with Northeast Brokerage Inc., says there’s no simple answer for what someone with a criminal background might expect when they’re looking for life insurance. However, those with a criminal record shouldn’t forego an assessment or rule themselves out prematurely without talking to a broker, Cunningham adds.

An individual's insurability is assessed and rated on a case-by-case basis, and the consultation will not cost them anything or affect their rates,” Cunningham says.

The best approach for someone with a past felony conviction is to reach out to an experienced broker who will take your situation into account, reach out to carriers for a risk assessment, advise you accordingly, and do the work required to secure a suitable and affordable policy, Cunningham concludes.

Frequently Asked Questions

How does a life insurance company determine rates?

Life insurance companies consider the amounts of coverage and lengths of time for term policies to determine rates. Companies assess various key factors to place you in a particular rate class.

They review age, health, and medical history (including family health history), driving record, smoker status, occupation, and avocation or lifestyle in the application and underwriting process.

This provides them with the information needed to determine your rate class. The rate classification determines the cost you will pay for a policy.

Companies gauge risk factors differently, so it’s wise to shop around to find the most affordable policy for your situation.

"Companies have different appetites for risk," says Cunningham, and "that is expressed in the pricing of their products."

How do life insurance companies collect information about you?

Insurance companies ask various questions regarding your age, health, family medical history, and lifestyle. Insurers typically require a medical exam, and conduct a background check, a review of your driving habits and record, and consult third-party sources. That process is called full underwriting.

Not all policies require that level of underwriting. For instance, accelerated underwriting and simplified issue policies forgo a medical exam. In a simplified issue policy, you only need to answer a handful of health-related questions.

There are also guaranteed issue policies, which don’t require an exam or questions. Guaranteed issue policies are often more expensive than other types but are the only way to get coverage for some applicants. Guaranteed issue policies include final expense life insurance.

How do life insurance companies determine rate classes?

Life insurance companies have their own unique and proprietary tools to assess your insurability and which one of their rate classes you should be placed.

Rates classes include Preferred Plus, Preferred, Standard (or Regular) Plus, and Standard. Your classification influences how much you pay.

At the bottom of the list of classifications and below the Standard ratings are referred to as "table ratings.” Someone in this substandard category, such as someone who has a terminal illness with a poor outlook or other high-risk factors, will be charged additional premium costs for a policy.

These higher costs are usually tabulated as percentage increases or multipliers of the standard premium rate to account for the higher risk they may pose to the company.

How do you lower life insurance rates?

Improving your health and smoking cessation may let you get lower life insurance rates.

While the ideal approach is to secure the best rating while you’re young and healthy, everyone's situation is different. It’s common for people to seek coverage with one or several conditions which insurance companies view as risks, and they will be rated accordingly for their policy. That rate class will be locked into your policy.

However, there are options as time progresses and whatever detrimental factors were present may no longer be relevant.

"Whatever it is that got you your rate, you try to fix," Cunningham states.

A common situation is that someone has a tobacco rating when they obtain a policy, and they later quit smoking. If enough time has passed, they may qualify for a better rating when they apply for a policy with another company. This requires the person to take initiative, however.

"If you were a smoker and you stopped smoking, they are not going to call you and ask if you stopped smoking -- you have to reapply to another insurance company to get a better rate,” Cunningham says.

The same basic approach applies to many different conditions, such as when someone may be eligible for a better rating after they lower their BMI or cholesterol or are cured of an illness.

"It's something that's very common," Cunningham assures, "that people will continue to reapply for insurance because they had one impairment on their file that as time progressed became less of a concern."

What factors don't influence rates for a life insurance policy?

Insurance companies don’t consider your race, religion, or sexual preference when you are looking to obtain a policy.

Lifestyle activities that aren’t seen as particularly dangerous, like golf or casual hiking, don’t increase your likelihood of dying, so insurance companies don’t flag them like they would for activities, such as scuba diving or mountain climbing.

Minor infractions on your driving record, like parking tickets or an expired registration citation, are unlikely to be of concern, too.

Alcohol abuse is a risk factor for insurance companies. They will note if you have been to rehab or treated for conditions stemming from excessive drinking. On the other hand, if you’re someone who responsibly drinks alcohol and in moderation, you shouldn’t be too concerned about an adverse effect on your rating.

Luke Henshaw contributed to this article.

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