How Life Insurers Calculate Premiums
Following our extensive guide into how to cut the cost of your Life Insurance to find the best policy for you and your family. In today’s guide we take a look into how Life Insurers calculate your monthly premiums and how certain factors can increase or decrease this monthly cost.
Two of the most common question we often get at Life Insurance Cover is:
How are my monthly premiums for Life Insurance calculated?
Will my existing premium increase if my circumstances change?
All UK Life Insurance providers use different factors to determine how much to charge their customers in monthly premium costs. Our helpful guide will go through the most common factors, helping you to keep costs down for the future and how you can actually reduce your monthly premium price.
Are you currently considering your first Life Insurance policy or wanting to review your current policy to protect your assets and family should you pass away? By using an FCA regulated broker, like Life Insurance Cover can instantly search all of the UK providers and help you find the best policy available and match your individual circumstances.
Factors That Affect Your Life Insurance Premiums:
Age
Health
Lifestyle
Policy Term
Due to the way all Insurance policies work to provide financial payments to policyholders when claims are made. Each type of cover needs a certain set of acceptance criteria to allow an Insurer to calculate how much each policy should cost.
The most common types of Insurance also have set criteria:
Car Insurance: Home postcode, Age, type of car, penalty points and claims
Home Insurance: Home postcode, type of home, amount of cover needed, security and claims
It is worth noting that all UK Insurers have their own acceptance criteria in addition to the standard types of criteria. Life Insurance protection is no different to other types of cover and also has a few set criteria, which also varies between providers.
These factors help an Insurer determine the level of risk you pose during the length of the policy when you are accepted for a Life Insurance policy. Should you have any underlying medical conditions or a higher risk of hereditary conditions, an Insurer will ask for further details during the quote process. If you have experienced a previous serious illness, an insurer will potentially take the view that you are more likely to make a claim against the policy than a person without any medical conditions. An insurer will also ask a few questions about your current lifestyle, including if you consume alcohol and whether if you are a current smoker (or have smoked previously). Some insurers will also ask about your hobbies/sports and their potential risks including skydiving, BASE jumping or racing cars. Depending on your pastimes or hobbies could potentially affect your premiums, this is because accidents resulting from such hobbies could result in a death and subsequent claim.
Your Age When Buying Life Insurance
The easiest way to explain the way UK Life Insurers assess your age is to compare it directly with car Insurance providers, a car Insurance provider will offer much better monthly premiums to older more experienced drivers and higher premiums for younger people. Life Insurance providers offer better premiums to younger people and higher premiums to older people because the older you get, the closer you are to the day of your passing away. Life Insurance policies generally cost less if you obtain them when you are younger because you are at a reduced risk of severe medical conditions or passing away
A key point to remember is that as we all become older your monthly premiums will increase on a new policy because of the risk of you having health issues and complications with older age. The longer you take out a policy for, the more you’ll also have to pay in the long run.
Your Health When Buying Life Insurance
As detailed within our previous guides on medical conditions and extensive medical A to Z directory it is very important to declare any ongoing medical conditions and your family’s medical history when making an application for a Life Insurance Cover policy. The best advise our expert team offer to website visitors and people who want a policy is to inform the Insurer of any illnesses and conditions that have occurred, including cancer, stroke, diabetes, heart disease and hypertension.
Because all UK Life Insurers assess conditions differently, it is important to use and FCA regulated broker, like Life Insurance Cover to find the best Insurer for your specific needs. It is also very important to read your policy wording carefully when you first obtain a policy so that your cover does exactly what you need it to do. If you have lots of ongoing medical conditions or a rare condition in your family history, you can still obtain a Life Insurance policy. However, it is important to remember that taking out a specialist Life Insurance policy with a provider that specialises in covering a range of more complex illnesses and high-risk cases may cost more in monthly premiums.
As discussed in a previous guide about medical conditions, it is important to never withhold any information from an Insurer regarding your health, family medical history or lifestyle. By not advising an Insurer can potentially invalidate your policy and make it impossible for you to make a claim and undo all of the future planning you have put in place.
Lifestyle Choices When Taking Out A Policy
Depending on your lifestyle choices and hobbies can impact the monthly cost of Life Insurance premiums. The most common key factors include consuming alcohol, smoking, physical activity and what your hobbies might be.
A UK Life Insurer will ask about how many units of alcohol you consume on a weekly/monthly basis to calculate your monthly premium, if you enjoy the odd beer or glass of wine it will not adversely affect the cost of a Life Insurance policy. However, if you consume a high amount then you might be offered an impaired Life Cover policy. By using an FCA regulated broker can help you to identify if you will need a specialist policy.
If you are a person who currently uses nicotine based products or smoke cigarettes, cigars, pipes or vapes in the last 12 months it is likely that a monthly premium will be more than a person that does not use nicotine based products.
Even if you choose not to play a sport professionally, your lifestyle choices can impact your Life Insurance. If you regularly choose to enjoy a dangerous hobby or extreme sport, such as snowboarding, scuba diving, skydiving and motorsports it' is extremely likely to increase the cost of your monthly premiums.
How Long You Need The Policy For
Another very important factor in the monthly cost of Life Insurance premiums is length of the policy, this is called the policy term. Depending on your individual circumstances and budget can impact the level of cover you are able to obtain:
Decreasing Term: This type of policy is usually the most cost effective because the amount your family and loved ones would receive when a claim is made reduces over the policy length.
Level Term: This policy choice, which is a little more expensive than a decreasing term policy will make a payment to your family and loved ones equal to the policy inception date. For example if you obtain £100,000 of cover on a 20-30 year policy and you pass away during the policy term, your family would receive £100,000 lump sum payment.
Whole of Life: Also referred to as Life Assurance, this policy type is usually the most expensive because it will need monthly payments until the age of 89 or you pass away. However this type of cover is not restricted by policy length.
Providing For Your Family
One of the largest factors that will directly impact your monthly Life Insurance premium costs will the amount of protective cover that you choose. The larger the lump sum payment that you would like your family and loved ones to receive from your life insurance upon your death, the higher your premiums are likely to be. When you take out a life insurance policy, you can choose either increasing or decreasing pay-outs. By using an FCA regulated broker, like Life Insurance Cover can help you to identify the level of cover you need and compare all of the UK providers to find the best level of cover that suits your individual circumstances.
Do I Need Any Additional Extras?
All of the UK Life Insurers offer additional products for their customers ranging from Critical Illness Cover, Child Cover and many more. By choosing some optional extras on top of standard Life Cover with an insurer, can also raise the premiums you pay. However, some providers do offer additional products without any additional cost and it is important read all of the policy documents to make sure the policy will protect you for the future.
Some Insurers offer additional products like Income Protection for when you cannot work due to sickness, accident or injury, and critical illness cover should you develop any of the critical illnesses stated in your policy wording. When deciding on the benefit of any additional products it is important to compare all of the providers, by using an FCA regulated broker can help you identify if an additional product would be beneficial for you and your loved ones.
Can My Existing Policy Premiums Increase?
The simplest answer to this major concern is that it depends on the Life Insurer and when the policy was purchased. Usually when a Life Insurance provider quotes a monthly Life Cover policy and begins to receive monthly premiums from a customer, they have accepted all of the above criteria and it will not impact the level of cover you receive over the length of the policy.
However, if a customer has not disclosed any existing medical conditions or lifestyle choices to try and obtain a cheaper policy. Then a provider may increase the monthly premium or cancel the Life Cover due to non-disclosure, this could undo all of the future preparation and leave yourself and your family un-protected and at financial risk if you pass away.
Help From Life Insurance Cover
Our team of experienced advisors have helped all of our visitors and customers find the best policies available by comparing Life Insurance providers and ensuring that families are protected for the future. Our helpful guide section can also answer many of the questions that you may have including medical conditions, lifestyle choices, specific providers and many more.
Because Life Insurance Cover is an FCA regulated broker we are able to search all of the providers including specialist Insurers who only offer policies through brokers. We are not tied to any specific Insurer and search all of the UK Life Insurance companies and compare quotes specifically to benefit our visitors.