When you apply for life insurance do you actually know how the insurance companies figure out what to charge you? When it comes to whole vs. Term life insurance they arrive at the rates the same way. Why do some companies charge more than others?
First let's try to answer the question of why some companies charge more than others for the same person. If, by chance, you have quotes from more than one insurance company and wondered why the prices are so different; hopefully, we can help clear up the confusion.
• All Insurance companies have their own underwriting criteria and target markets. These two reasons are a huge part of price fluctuation. One company may look at someone with certain health issues totally different than the way another company does. This plus the target market issue are the reasons you should always look at quotes from more than one insurance company.
How do insurance companies figure out what to charge for your policy? There are many different criteria that they use. Let's go over the three that are most common. Remember when it comes to whole vs. term life they use the same information.
• Mortality Tables- The mortality tables are statistics kept by insurance companies over many years based on age, sex and other characteristics. In keeping this information over the years underwriters have been able use the information to come up with deaths per 1,000 for any group of people in the world. This is known as the "mortality rate". They know that on average 5 people out of 1,000 will die in a particular sex/age group. Then they know they have to charge that group of people five dollars per thousand dollars of coverage.
• Interest- Because people pay for their insurance in advance of needing it the insurance companies must invest a portion of the money. The interest earned on these investments helps keep the cost of the life insurance down for policy holders.
• Expenses- The insurance companies must use a process referred too as expense loading to help cover their cost of doing business. Due to the fact that mortality is the base of a life insurance premium and the interest is use to help reduce the cost of life insurance. The insurance companies have to use expense loading to be able to pay for company expenses.
In closing I am in hopes that this article will help explain how the insurance companies arrive at the rates they charge. If you have any questions on this subject or any other questions about life insurance you can feel free to contact me through my url.
W A Henderson: is a Partner of the Henderson-Kosor Insurance Solutions Agency. He frequently writes articles about Life Insurance Topics and the importance of working with an agent that can offer you a variety of insurance companies to work with. He strongly believes that an agent should work for his/her clients. To work with an agent that will work for you visit us at http://www.LifeQuotes4You.com
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