Buying a life insurance policy is vital from a financial risk management perspective. Life insurance gives you and your family a financial cushion against the losses that may arise from your untimely demise or any other unfortunate incident.
While there are different life insurance policies, the cost of such policies varies based on the policy buyer’s risk profile and the possibility of policyholder’s demise, which is called ‘Mortality Rate.’
If you buy a term life insurance policy, the premium will change as per the mortality rate, and age is a critical factor affecting this change. This means your term life insurance premium will change with age. The older you are at buying the policy, the higher the term insurance premium will be. However, the premium prices vary if you are purchasing a new policy. Once you buy a term plan, the premium remains the same through the insurance term.
Understanding the concept of mortality rate
Mortality rate means the risk of deaths occurring at a specific age amongst a defined population. The insurance companies use the mortality rate as a basis for determining the premium amount to be charged from the insurance policy buyer. Thus, the premium charged by an insurance company is referred to as a mortality premium.
Other factors that affect term insurance premium
Apart from the policyholder’s age and the mortality rate, the insurance companies decide the premium based on several other factors, which are discussed below:
Medical history
Suppose your family has a history of certain diseases like heart ailments, cancer, high blood pressure, diabetes, etc. In that case, the insurance company may consider you a high-risk insurance buyer as you may be susceptible to such diseases. And, to compensate for the high risk they undertake in offering you a life cover, they may charge a higher premium.
Occupation/profession
The type of occupation or the profession you are engaged in plays a vital role in determining the premium you pay for term insurance. Insurance companies consider specific jobs like mines, oil rigs, fisheries, merchant navy, etc., as dangerous than others as the possibility of death due to accidents in such professions is high.
So, if you are involved in any such profession, you may have to pay a higher premium for your term plan than others.
Policy term
This is another critical factor that affects the term insurance premium. The longer your policy tenure, the larger your gross death benefit amount will be as you pay the premium for that period. Hence, your premium will be lower compared to a short-term insurance plan.
Lifestyle habits
If you smoke or consume alcohol, the insurance companies will consider you a high-risk insurance buyer as such practices increase the risk of serious illnesses. Hence, if you have any such habits, you must be ready to pay a higher premium. Also, you must disclose your smoking or drinking habits in the insurance application form.
If you fail to do so, the insurance company might deny the death claim to the nominee saying the cause of death is due to unsupplied or falsely-supplied information.
Final Word
Thus, it is evident that age significantly impacts the term insurance premium price. To get the insurance cover at an affordable premium, it is advisable to buy the policy at a young age. Generally, insurance experts suggest purchasing a term plan as soon as you get your first salary. So, buy your policy early and give your family the financial security they deserve.