(Image source: pixabay.com)
Special to California Business Journal.
Every insurer will quote a different life insurance premium. So, you need to select an insurance company that provides the best deal for your specific circumstances. In order to do that, it helps to understand how your premiums are calculated.
Your insurance premiums can depend on the type of insurance policy you take out. There are five main types of life insurance available from companies. They are:
–Term insurance, in which you pay premiums for a specific number of years. Your insurer will only pay a death benefit if the policyholder dies within the term.
–Permanent life insurance, which sustains coverage until the policyholder dies. If you take out a permanent whole-life policy, you either pay a fixed premium for a designated number of years or for the life of the policy.
–Universal life insurance, in which the premiums are flexible. That refers to the timing of your premium payments and not the aggregate. The latter will need to be paid over the life of the insurance policy.
–Indexed universal life policies, in which the rate of return is tied to the performance of a specific financial index instead of a standard interest rate.
–Variable universal life policies, in which the amount of your premium accumulates, when exceeding the actual cost of your insurance, and is invested into sub-accounts.
It is important to choose the right type of insurance policy to suit your needs. But it is just as vital to find the right insurance company. If you want to get the best deal, you need to shop around. To find the best life insurance plan for you, you must take the time to compare life policies from different insurers. A life insurance comparison site can match you with multiple companies in your local area and give you advice on the best option. Once you have compared different companies, you can easily select the one that best suits your life insurance needs.
Insurers use statistics and calculations to determine the amount of insurance premiums you must pay. The most common factors that insurance companies evaluate include your age, life history, credit score, and medical history. Insurers also employ statisticians or actuaries to get a better idea of what to charge clients for life insurance premiums. Those experts will look at sickness and mortality rates to predict potential losses due to illness and death. They can then assign a probability level of the policyholder falling ill or dying. Insurers then use that information to assign appropriate life insurance premiums to their clients. So, the process of calculating life insurance premiums looks like this:
–Investigating illnesses and diseases in your family history.
–Analyzing reports like medical records and motor vehicle documents.
–Predicting the likelihood of you making a claim on insurance coverage.
Once the calculations have been conducted, insurance companies can determine if the possibility of you making a claim is high or not. If it is high, your life insurance premiums will be higher.
A written premium is the total insurance premiums that insurers charge their clients for policies. Written premiums are the amount of premium the insurance company charges for a policy that has already been active. Insurers issue premiums on specific policies during a particular duration regardless of the premiums earned. So:
–Written premiums are the number of insurance premiums you must pay for insurance coverage written during the accounting period.
–Earned premiums are the number of insurance premiums an insurer has earned by offering insurance to clients against various risks during the year.