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The recent pandemic has shed light on the importance of life insurance. While the awareness for life insurance has increased, you may be able to save on it if you know about key factors that influence life insurance premiums.
Age
The age of the life assured plays a critical role in determining the premium. The mortality rate, i.e. probability of death, increases with age. Therefore, a person with a higher age shall be required to pay higher premium than a younger person. Based on the IALM (Indian Assured Lives Mortality) 2014-16 table, the mortality rate at age 50 is 380 per cent higher than the mortality rate at the age of 20. Additionally, as per the mortality tables worldwide and experience, women are likely to have 30-35 per cent lower mortality than a man of similar age. Therefore, women are likely to be charged lower premiums than men.
Lifestyle matters
Health parameters and lifestyle choices also play an essential role in determining life insurance premiums. Higher BMI (body mass index) indicates overweight or obesity leading to many medical complications including diabetes and cardiovascular problems. The mortality rate for an obese person is likely to be higher, and the company may charge an extra premium to cover the additional risk. Moreover, underwriters view excess weight or obesity as one of the major risks to life. One needs to make lifestyle changes to reduce the weight and thereby lower the BMI. Adopting a healthy lifestyle, controlling the intake of calories, and regular workouts will be beneficial. This will help reduce any extra premium loading, which may go up to 50-200 per cent over standard mortality on a case to case basis or may even be declined.
Similarly, smokers tend to have a higher mortality as compared to non-smokers. Therefore, smokers are required to pay higher premium than non-smokers of the same age. The premium for a smoker may be close to 50-60 per cent higher than the premium for a non-smoker.
The same is the case for the consumption of alcohol. Excessive drinking harms one’s health, and the underwriter may load an extra mortality premium of 50-200 per cent or even decline cover for an addicted heavy drinker.
Besides, a history of medical conditions, family history of illnesses (hereditary diseases) could factor into your life insurance premium and increase the cost of your coverage.
Work matters
Hobbies or jobs like skydiving, racing cars which are high risk in nature, could lead to higher premiums by the underwriting philosophy of the insurer. Certain hazardous occupations which expose a person to toxic chemicals or require one to perform dangerous duties may require a higher premium.
That said, for an individual, when it comes to life insurance, a term life cover should be of top priority. While the above are the critical reasons for premium variation, it is easier and cost-effective if a term cover is purchased early for lifelong coverage.
The writer is Chief Actuary and Chief Risk officer, Kotak Life Insurance
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