Insurance is focused on the evaluation of risk, which is something that life insurance companies know a great deal about. Each time life insurance companies acquire an application for a life insurance plan, the companies make a decision on how much of a risk that applicant poses with their business. This is to say that the insurance company makes an informed estimation of how long the candidate will probably live versus how many insurance premium payments they are likely to make before the loss of life occurs.
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If they assume that the applicant will live long and can, therefore, make a considerable number of insurance premium repayments during his/her life, then life insurance companies start to see the applicant as low risk to their business. However, if life insurance companies assume that a potential candidate could perish soon, and for that reason make relatively few insurance high-quality 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 determining life insurance payments two factors are considered by life insurance companies. The first factor requires an evaluation of the overall likelihood of loss of life occurring at a specific age and includes the scaling of people against normal life expectancy. This places 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 ‘chance level’ you will 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 a bad lifestyle suffers from pre-existing health conditions which are in a high-risk job may very well be categorized as ‘above average’. let’s look at it another way, a person that goes to the gym regularly does not smoke cigarettes, and eats a balanced diet may very well be viewed as ‘below average’. Obviously, those who are substandard risk will discover lower cost insurance premiums on their life insurance policy for their age than people who are labeled as ‘above average’.
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Since it is often very little we can do about pre-existing health issues, there are ways that we can tip the scales in our favor of cheaper life insurance. This we can do by changing our lifestyle and striking a better work-life balance in a stress-free environment. Changing lifestyle habits though can become more effective for some than it can for others.
For instance, a person in their 20s living out an unhealthy way of life may be seen as less risk with an insurance threat for his or her age to life companies than someone in their 50s with the same bad lifestyle. This is because the body of your 20-year-old will react more successfully to improvements in lifestyle than will your body of a 50-year-old. In essence, therefore, there will vary degrees of being above average and below average, making the calculation of life insurance costs for each specific definitely a job for professionals at the life companies!