If you’re new to the world of life insurance, it can be daunting as a beginner to understand how it all works.

An aspect that most people are concerned about is the cost of insurance. How much does it cost to service a life insurance policy?

There is no standard answer to that question as a life insurance policy is typically a customised plan that fits your own life situation and needs. As such, different factors are taken into account when the insurer calculates the costs of providing insurance coverage to an individual.

So, what do insurance companies look out for when pricing their insurance policies? Here are twelve factors that can affect your insurance premiums.

Top 12 Factors That Affect Life Insurance Premiums

1. Age

Age may just be a number for most of us, but it’s arguably one of the top factors that determines life insurance premiums.

Generally speaking, the younger an individual is, the lower his risk of death. As such, his premiums would be lower compared to an older person buying the same policy, all things being equal.

This is why you often hear that it’s better to buy insurance when you’re younger. Not only does purchasing insurance earlier in life guarantee your insurability, it also means you’ll be paying lower premiums.

That said, you’ve never too old to buy life insurance coverage! If budget is a constraint, term life insurance might be the best option for you.

2. Gender

This may seem like a sexist item on the list, but it’s actually based on reality.

Statistically speaking, women have a longer life expectancy than men. In the Singapore context, data from Sing Stat shows that women have a life expectancy of 85.2, almost 5 years more than men (80.7).

you’re likely to pay lower premiums for life insurance than your male counterpart.

3. Occupation

If you have a regular 9-to-5 job, don’t fret — insurance underwriters won’t assign any additional risk to your profile.

However, there is a list of dangerous occupations that are considered risky and these jobs means having to pay a higher premium rate in order to account for that extra risk.

Some jobs usually classified as “high risk” include skydiving instructor, working on an oil rig, commercial diver, and aircraft pilot. Each insurer has their own list of high-risk professions, so we suggest checking with your insurer of choice if your occupation is deemed dangerous.

4. Smoker vs non-smoker

Smoking is a big red flag for insurers. Being a smoker increases your health risks and this makes you a bad bet for insurers.

Accordingly, a smoker may be charged as much as twice more compared to a non-smoker when seeking life insurance coverage. That sounds like a good incentive to kick the bad habit!

5. Pre-existing conditions

Having a pre-existing condition increases your risk of becoming ill, getting injured, or even dying.

What constitutes a pre-existing condition? If you have received medical advice, experienced symptoms, or received treatment for an illness before buying a life insurance policy, that illness is considered “pre-existing”.

Some pre-existing conditions carry too much risk and render you uninsurable in certain instances. However, if the pre-existing condition is not too serious, the insurer may impose a higher premium on your policy in order to account for the higher risk they’re taking on.

6. Your medical history and current health status

Pre-existing conditions aren’t the only thing that insurers take into account; the state of your health is also a key factor in determining your life insurance premiums.

Things such as recent hospitalization for serious illnesses, major operations, or on-going medication for chronic illnesses are some potential areas of concern for a life insurer. This is why you often have to answer a health questionnaire when applying for a life insurance plan.

It is one way for the insurer to assess the level of risk associated with insuring an individual. If you are not in good health, chances are you’ll have to pay more to be covered under a life insurance plan.

7. Family medical history

Other than your own medical history, your family’s medical history also plays a part in how much you have to pay for life insurance coverage

Similarly, if your family has a history of medical conditions or health issues that are hereditary, you carry more risk as you’d be more likely to fall prey to those ailments. This increases the cost of your coverage.

For instance, a family history of heart disease, stroke, or cancer could raise the premiums for your life insurance.

8. Lifestyle

Aside from smoking, there may be other lifestyle habits that can mean higher premiums for life insurance.

Drinking is another habit that is a concern for insurers. Heavy consumption of alcohol can lead to health problems, which increases the risk of insuring the individual. If you drink frequently, your insurer may charge you higher premiums.

High-risk leisure activities can also mean paying more for life insurance. Activities such as rock climbing, diving, mountaineering and skydiving are often considered potential risks when evaluating a person for a life insurance policy.

If you partake in such activities, be prepared to pay more for your life insurance.

9. Policy type

Life insurance is a diverse market, with many types of policies to meet different needs. The type of policy you select will also determine the cost of insurance.

When it comes to life insurance policies that cover death, there are generally two categories of policies: whole life insurance and term life insurance.

Whole life insurance is a type of permanent insurance that is meant to provide coverage for your lifetime. This type of policy often is a participating policy which pays out bonuses based on the market performance of the insurer’s participating fund. As such, a whole life policy will accrue cash value and is usually more expensive in terms of premium.

On the other hand, term life insurance is meant to cover the insured for a specific period of time and doesn’t accrue any cash value. Once the term of the policy is finishes, the coverage is terminated.

Often thought of as a more “pure” form of insurance, the premiums for term life are typically more affordable. The premiums for term life for a high sum assured would be lower than that for whole life insurance. This makes term life an ideal option for those who desire high death coverage at an affordable cost.

10. Policy term

As you might’ve guessed from the previous point, the longer the term of a policy, the higher the premiums. This accounts for the higher risk that comes with a long policy term.

For instance, if you were keen on a $500,000 term life insurance policy, a plan that covers only 10 years would be cheaper than one that covers for 30 years. Why? Death (and thus a payout of the policy) is more probable in a span of 30 years than in a 10-year timeframe.

11. Benefit payout

Don’t forget that your premiums go towards the money that your beneficiaries will receive should anything untoward happen to you.

So, accordingly, choosing a higher benefit payout will mean higher premiums.

12. Frequency of payment

How often you pay your premiums can also have a small effect on what you pay for your life insurance policy.

Typically, the following frequency of payment is available: monthly, quarterly, half-yearly, and annual. Annual payment of premiums often offers some savings compared to paying monthly premiums.

This is because the administrative costs of handling your policy is lower when you pay annually. So, if you have the budget, you could save some money by paying for your life policy yearly instead of monthly.

Final Thoughts

When evaluating a life insurance proposal, insurers take into account the twelve factors mentioned above, among others.

To what extent does each factor play a part in determining your premium rate?

Each insurer is different, but it will typically boil down to the following:

  1. The specific details associated with each factor
  2. The company’s underwriting policy

Each potential insured is assessed on a case-by-case basis by the insurance company, and each company may offer different terms of coverage. That’s why it can be a smart move to “browse” and consider options from different insurers to see which can offer you the best terms.

Not sure how much life insurance coverage you need? Check out our simple guide to calculating your life insurance needs.