Factors Influencing Insurance Premium
It may come as a surprise to you that despite having the same life cover as your best friend, you are paying a higher premium than him.
However, there are multiple factors that determine the premium you have to pay after getting the insurance.
Understanding these factors can help clear up the confusion and help you determine how much premium you will have to pay.
One of the main factors that influence the premium amount is the age of the policyholder. The older you are, the higher the premium you will have to pay.
This is because the risk of a payout to the insurance company is higher for older individuals, as they are more prone to health issues and illnesses.
The gender of the policyholder is another factor that can affect the premium amount. Generally, women tend to have a longer life expectancy than men, so they may end up paying a lower premium.
Additionally, women may also have lower premiums for certain types of insurance policies, such as car insurance.
Your lifestyle and health also play a significant role in determining the premium amount. If you have a pre-existing medical condition, you may have to pay a higher premium than someone who is healthy.
Similarly, if you lead an unhealthy lifestyle, such as smoking or excessive drinking, you may have to pay a higher premium.
Your occupation and the nature of your work can also impact the premium amount. If your job involves a higher level of risk, such as working in construction or as a firefighter, you may have to pay a higher premium.
Finally, the duration of the policy, the sum assured, and the type of insurance policy you choose can also affect the premium amount.
The longer the policy duration and the higher the sum assured, the higher the premium will be. Additionally, certain types of insurance policies, such as term insurance or whole life insurance, may have different premium amounts.
By understanding these factors, you can get a better idea of how much premium you will have to pay and how it compares to others in similar circumstances.
It’s essential to research and compare policies from different insurers to find the best deal for your needs.
Key Factor That Determine the Insurance Premium
Age
The age of the policyholder is the primary factor that determines the premium amount charged by the insurance company.
This is because younger individuals are generally considered to be less susceptible to critical illnesses than older individuals.
As a result, a 25-year-old policyholder is likely to pay a lower premium than a 35-year-old policyholder. Additionally, the remaining lifespan of the policyholder also plays a crucial role in determining the life cover provided by the insurance policy.
Gender
It is a well-established fact, supported by scientific research, that women tend to have a longer lifespan than men.
As a result, when it comes to insuring the life of a male and a female of the same age, the risk associated with the male policyholder is typically considered to be higher than that of the female policyholder.
Consequently, insurance companies may charge a lower premium for a woman than a man of the same age, due to the lower risk of payout.
Lifestyle
Medical research has established that smoking and alcohol consumption can significantly increase the risk of developing serious illnesses.
The risk factor for the insurer is even higher if these habits are prolonged. Therefore, individuals with such habits are likely to be charged a higher premium by insurance companies due to the increased risk of a payout.
Conversely, insurance companies may charge a lower premium for individuals who lead a healthy lifestyle, as the risk of a payout is lower.
Family Medical History
Certain medical conditions, such as cancer, Alzheimer’s disease, heart disease, and diabetes, have a genetic component and tend to run in families across generations.
If an individual has a family history of such illnesses, insurance companies may charge them a higher premium due to the increased likelihood of developing these conditions.
Your Present Condition
Before providing an insurance cover, the insurance company typically conducts a thorough evaluation of the policyholder’s current health status.
This evaluation usually includes a complete medical examination that checks various parameters such as weight, height, blood pressure, blood sugar levels, cholesterol levels, vitamin and nutrient deficiencies, and other health indicators.
This evaluation process is commonly known as “underwriting,” and it helps the insurance company to assess the risk associated with insuring the policyholder.
Types of Insurance Plans
The premium amount for an insurance policy is primarily determined by the type of policy purchased and the duration for which the premium payments are required.
In the case of Unit-Linked Insurance Plans (ULIPs), there is an additional objective to grow the policyholder’s funds.
These plans are designed to help policyholders earn higher returns on their investments while also providing insurance coverage.
Other Important Factors
In addition to the factors mentioned earlier, there are several other minor factors that can affect the premium amount for an insurance policy, such as the policyholder’s investments in banks or other financial instruments.
However, the primary factor that determines the premium amount is the type of policy that the policyholder has purchased.
It is often advised that one should not let their curiosity wane, as it helps to clear doubts and provides clarity.
When it comes to purchasing an insurance policy, it is essential to have all questions and doubts addressed before making a final decision.
This approach can help ensure that the policyholder is fully informed and confident in their decision to purchase the policy.
