How Companies Determine Life Insurance Premiums
An underwriting department reviews life insurance applications to determine eligibility for a variety of coverage. Generally, this is the department that sets the premiums and ratings for policies.
A rate is a surcharge based on an expectation of higher claim expenses due to any number of situations or conditions including:
Medical condition
Family history of medical conditions
Pre-existing ailments
Lifestyle activities such as skydiving, etc.
For example, with automobile insurance, a person will probably pay a higher rate if they have a bad driving record (number of speeding tickets, crashes, etc.). In the case of someone who suffers from sleep apnea, the insurance company will likely determine that because this person has a higher rate of risk that they should therefore pay a higher premium for life insurance. With health insurance, for example, someone who is overweight and/or has high blood pressure is more likely to have health problems than someone of ideal weight and normal blood pressure. A number of studies show the potential consequences of such conditions. Most insurance companies charge these individuals a higher rate than someone without these issues.
Typical ratings are 30 percent, 60 percent or even 100 percent of the premium for someone with no reported health problems. Anyone with a chronic condition is more likely to be rated than someone with a temporary health problem, for example, an uncomplicated broken leg. The severity of the health problem, for instance, high blood pressure or cancer, also plays a role in setting the rating. Insurance companies rate based on their own experiences, but may also look at other companies to make sure their determinations will be in line with others.
An actuary calculates premiums and ratings for an insurance company [http://www.advantagegroupinsurance.com/personal-insurance/life-insurance/], based on sufficient data from pools on health issues of potential customers:
The number of people who are overweight
Those that smoke
Those who have diabetes, and
Other conditions which affect overall health
From such pools, which are often based on geographical regions such as states or counties, an actuary can draw the ratings. However, if the company's clients are not similar to the pools on which the company has data, the company will not charge according to its risk and may get a greater number of clients possessing less desirable risks. This can cause claim expenses to be higher than expected; if there is no profit, the company cannot continue to offer a product. Accurate underwriting or risk assessment, on the other hand, should lead to an accurate premium for the group with similar medical problems as a whole.
A rate is a surcharge based on an expectation of higher claim expenses due to any number of situations or conditions including:
For example, with automobile insurance, a person will probably pay a higher rate if they have a bad driving record (number of speeding tickets, crashes, etc.). In the case of someone who suffers from sleep apnea, the insurance company will likely determine that because this person has a higher rate of risk that they should therefore pay a higher premium for life insurance. With health insurance, for example, someone who is overweight and/or has high blood pressure is more likely to have health problems than someone of ideal weight and normal blood pressure. A number of studies show the potential consequences of such conditions. Most insurance companies charge these individuals a higher rate than someone without these issues.
Typical ratings are 30 percent, 60 percent or even 100 percent of the premium for someone with no reported health problems. Anyone with a chronic condition is more likely to be rated than someone with a temporary health problem, for example, an uncomplicated broken leg. The severity of the health problem, for instance, high blood pressure or cancer, also plays a role in setting the rating. Insurance companies rate based on their own experiences, but may also look at other companies to make sure their determinations will be in line with others.
An actuary calculates premiums and ratings for an insurance company [http://www.advantagegroupinsurance.com/personal-insurance/life-insurance/], based on sufficient data from pools on health issues of potential customers:
From such pools, which are often based on geographical regions such as states or counties, an actuary can draw the ratings. However, if the company's clients are not similar to the pools on which the company has data, the company will not charge according to its risk and may get a greater number of clients possessing less desirable risks. This can cause claim expenses to be higher than expected; if there is no profit, the company cannot continue to offer a product. Accurate underwriting or risk assessment, on the other hand, should lead to an accurate premium for the group with similar medical problems as a whole.
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