How is life insurance calculated?

When calculating life insurance policies, providers will take into consideration a number of different risk factors to determine the pricing, exclusions and level of cover. Before being approved, the applicant will be asked a series of questions about their lifestyle and medical history, helping to identify the risks they pose, and subsequently the likelihood the providers will have to pay out. The risk criteria will vary between insurers, each one having their own set of factors to determine

Yugi the Giraffe - 31 May 2019

When calculating life insurance policies, providers will take into consideration a number of different risk factors to determine the pricing, exclusions and level of cover.

Before being approved, the applicant will be asked a series of questions about their lifestyle and medical history, helping to identify the risks they pose, and subsequently the likelihood the providers will have to pay out.

The risk criteria will vary between insurers, each one having their own set of factors to determine whether or not to issue a policy, as well as the cost of a policy.

What factors can affect your life insurance premium?

There are various factors considered when calculating your life insurance. These include:

• Age

• Medical history
• Smoking and drinking
• Occupation
• Dependants
• Hobbies

Age

The cost for life insurance premiums will most likely rise with age. This means that those applying at an older age will typically face higher premiums than younger people who take it out.

Therefore, in order to access a lower premium, it’s best to apply for life insurance when you’re younger, rather than waiting until an age where premiums start to rise. This is particularly the case if you have dependants (e.g. your family, children and/or spouse), helping to ensure they are taken care of if anything were to happen.

Data from Compare The Market shows the average cost of life insurance based on age is:

¬ 16-29-year-olds is £11.56 per month

¬ 30-39-year-olds, the cost rises to £16.56 per month
¬ 40-49-year-olds pay on average £26.46 per month
¬ 50-59-year-olds, it costs £27.13 per month
¬ 60+ year-olds, the cost is £42.95 per month

Medical history

Your medical history will also play a part when calculating your life insurance premiums. This will depend on whether you have had any significant illnesses in the past, the severity of these illnesses, and whether you are still suffering from them (they are chronic or not).

For those who have suffered from cancer, you may find that a lot of insurers may not offer cover unless you are in remission for a minimum of five years.

Certain conditions deemed life-threatening may increase the cost of cover by a considerable amount, or prevent you from taking out life insurance altogether.

You could find that your family’s medical history is also taken into account. This will depend on how severe any conditions are and genetic conditions relating to mental health, muscles, heart, lungs or other vital organs. Your premium could therefore be affected by a significant history of illness in the family.

Smoking and drinking

Smoking and excessive drinking will typically lead to higher insurance premiums. This is because smoking has been linked with various different types of cancer (e.g. throat and lung), meaning they are a higher risk to cover.

If you have smoked or used tobacco within the last year (12 months precisely) insurers will most likely consider you to be a smoker. This includes nicotine patches and recently, vaping and e-cigarettes. Insurers will also put you under the category of smoker whether you smoke a pack a day or just every once in a while.

Although you may be inclined to say you are a non-smoker in order to save money, insurers have been known to run random spot checks or require medicals that would confirm tobacco use in the last few months.

Additionally, if you drink more than the recommended alcohol consumption guidelines, the cost of your life insurance could rise drastically. This is because those who drink excessively could suffer from a number of associated health problems, including liver disease.

Occupation

Your occupation will also be considered when your life insurance premium is being calculated. For example, high-risk jobs such as manual labourers, soldiers, pilots, construction workers or working on an oil rig can often end up costing more for premiums than those working in a safer field (e.g. an office).

Additionally, your income will also come into play when assessing an application, helping insurers to judge whether you will be able to keep up with insurance payments.

Dependants

Your dependants can also have a significant impact upon your insurance premium. Life insurance should help to support your dependents if anything were to happen to you – and having more children will be reflected in the cost.

Your dependants can be defined as the people who rely on you financially. This can include, your children, spouse, elderly parents and even pets.

What types of life insurance premiums can I get?

With life insurance, there are two main types of available premiums, these being:

• Reviewable premiums

• Guaranteed premiums

A reviewable premium means that your policy will be up for review during set periods over time, meaning the cost of cover may change from the initial rate given. In contrast to this, a guaranteed premium is a type of cover that is guaranteed not to increase throughout the term of the policy.

What types of life insurance can I apply for?

Whole of life – This covers the individual for the whole of their life and is usually more expensive because the insurer knows that they will need to pay out at some point, even if it is in 50 years’ time.

Over 50 plan – For those aged 50 to 85, there are greater risks of illness and death and for applicants with no medicals, this can be costly to mitigate risk for the insurer.

Level term – This refers to taking out life insurance for a certain term e.g 10 years, 20 years or 30 years – this is typically less expensive because the insurer considers that the person may not die in this time, especially if they are young and fit.

Decreasing term – The pay-out amount decreases over the term of the policy, so essentially you will receive less in terms of a pay-out. This could be useful because you may have more costs initially for things like a mortgage, school fees, holidays etc. but have less outgoings when you get older.

Employee scheme – You can apply for an employee life insurance scheme, either as an employer or a member of staff. This is usually paid for by your employer as a benefit in kind and will often give you important cover whilst working at the company. At yulife, we offer life insurance for small businesses from just £4.99 per person, per month, giving you essential life cover and the option to access discounts, vouchers and benefits for staying healthy.

Yugi the Giraffe

Yugi is our YuLife mascot. Like all giraffes they've got a big heart – in fact the biggest heart of all land animals.