How Premiums Are Determined

Life insurance premiums are based on risk factors—the likelihood that the insurer will have to pay out a claim. Key factors include:

Age: Younger applicants generally pay lower premiums because they are statistically less likely to die soon.
Gender: Women often pay less than men due to longer life expectancy.
Health Status: Medical history, current conditions, weight, blood pressure, and cholesterol all affect rates.
Lifestyle: Smoking, alcohol use, and risky hobbies (like skydiving) increase premiums.
Occupation: Jobs with higher risk (construction, aviation) may lead to higher costs.
Coverage Amount and Type: Larger death benefits and permanent policies (whole or universal life) cost more than smaller or term policies.

Example: A healthy 30-year-old non-smoker may pay $25/month for a $500,000 term policy, while a 50-year-old smoker could pay $200/month for the same coverage.

Underwriting Basics

Underwriting is the process insurers use to evaluate risk and decide whether to issue a policy, and at what cost.

Steps in Underwriting:

Application Review
- Collects personal details: age, occupation, health history, lifestyle.
Medical Exam (for many policies)
- May include blood tests, urine samples, blood pressure checks, and medical records.
- Some policies offer “no-exam” underwriting but usually at higher premiums.
Risk Classification
- Applicants are placed into categories such as Preferred Plus, Preferred, Standard, or Substandard.
- These categories determine premium rates.
Policy Approval or Adjustment
- The insurer decides whether to issue the policy, adjust coverage, or decline based on risk.

Why It Matters

Transparency: Understanding underwriting helps you know why premiums differ.
Preparation: You can improve your health and lifestyle to qualify for better rates.
Choice: Some may prefer simplified or guaranteed issue policies if they want to skip medical exams.

Consumer Takeaway

Premiums are determined by age, health, lifestyle, and coverage choices, while underwriting is the insurer’s process of assessing risk. Together, they ensure that life insurance is priced fairly and tailored to each person’s situation.

Get Help Enrolling

Connecting with a licensed agent can help you:

Discuss life insurance options
Understand the pros and cons of different types of policies
Compare plans to find the best fit for your budget and needs