Cost of Insurance

The cost associated with life insurance varies, while individual premiums are determined by a client’s age, gender, smoking status and health history, the premiums for the various ages are calculated using statistics.

Insurance is based around the idea that a large number of people contribute a small amount of money (a premium) into a fund or pool, to cover the needs of those people who suffer a loss. Actuaries (people skilled in predicting trends and probabilities using statistics) use mortality tables to predict how many people are likely to die in a given year. Using these predictions, the insurance company will be careful to have enough money available (in liquid investments) to pay life insurance claims - quickly. The insurance company does not rely only on policyholder money to cover risk; instead, it puts the premiums to work to grow the policy fund. Professional money managers invest the premiums on behalf of policyholders.

Some people are required to pay additional premiums over those calculated based on statistics. People who engage in hazardous sports or activities such as mountain climbing, hang gliding or parachuting would be classified as a higher risk than someone who does not participate in such activities. Occupations associated with higher risk such as a helicopter pilot or bomb technician would also contribute to an individuals premiums being increased. If your family has a history of heart disease or cancer, for example, this wouldn’t mean that you could not obtain life insurance; these factors could, however, impact your insurance premiums. If you are in reasonably good health and haven’t shown the signs associated with the hereditary illness, your situation would be given individual consideration. Although your family’s history may increase your risk of certain illnesses, it doesn’t necessarily mean that it will pass along to you. Your premium would be based on the amount of risk the insurance company accepts by insuring your life. Since we don’t know if we will be the one in need, by purchasing life insurance we are willing to share the risk.

Premiums also vary widely from one type of policy to the next, especially among those that offer additional benefits allowing you to customize your plan.