When you purchase your life insurance coverage, the rate you pay, or premium, is determined by a number of factors ó not just how much coverage you purchase. Insurance companies assess the amount of risk you represent or the likelihood that you are going to cash out the policy before it matures. Certain factors increase the risk you present to the company and thus increase the amount of the premiums you will pay. However, you donít have to pay high premiums for this necessary coverage, especially if you do some homework before you buy.
When youíre young and healthy, you probably arenít thinking about end-of-life issues and how your family will be cared for when you pass ó especially if you donít have a family yet. However, the best time to buy a life insurance policy is when youíre young. Not only are you likely to fall within this standard rate pool, which is the lowest rate class, you can also lock in your lower rate. Even as you get older and your health declines, youíll still pay the lower rate.
The best way to get the lowest rates from the start is to be a healthy non-smoker. Being overweight, smoking, drinking alcohol and living an unhealthy lifestyle will be reflected in higher rates. Insurers believe that when their customers lead a healthy lifestyle, they are less of a risk and thus deserve a lower premium.
If you are carrying a few extra pounds, or you smoke regularly, make some lifestyle changes. Lose the extra weight through diet and exercise; in general, you should aim for the weight range that your insurance company considers ďidealĒ for your height. Quit smoking and take steps to be as healthy as possible.
If youíve already applied for insurance and been declined, or received a higher premium quote than you would like, once youíve gotten healthy reapply for coverage. If youíve lost a significant amount of weight, you have a better chance of getting coverage at a more reasonable rate.
Not only should you ask for a rate adjustment when you adopt a healthier lifestyle, you should also keep your insurer informed of other changes ó such as when you stop engaging in dangerous hobbies or change jobs. Someone who works as a fisherman on the sea, for example, or engages in mountaineering or skydiving on the weekends, is going to be viewed as a higher risk than someone who works in a city office and doesnít have extreme hobbies. If things change in your life, let your agent know, as your reduced risk could translate to a reduced premium.
Insurance experts recommend that customers purchase a life insurance policy thatís equivalent to about 10 times their annual salary. However, how much you need depends on a number of factors, including how much debt you have, how many children you have and how much money your family would need after you pass. If you are young and do not have children yet, you may not need as much coverage as an older person with several children; however, you might want to purchase a larger policy to secure lower rates while you can.
Each insurance carrier has its own methods for determining how policies are sold. In some cases, you may be able to purchase a policy without a medical assessment by just answering a few questions. Other carriers ask applicants to undergo a comprehensive assessment, complete with blood work. In general, if you donít have to have the assessment, youíll pay more for coverage than if you do, since the carrier assumes a higher risk level.
Life insurance is an important purchase that provides you and your family with peace of mind. While price should not be the only factor in your decision about which policy to buy, there is no need to pay more than necessary. Start shopping early, get healthy and stay informed, and it wonít take a huge bite out of your budget.
About the Author: Mia Davies is a longtime financial writer from Adelaide. She recently switched to Suncorp for her life insurance policy needs.
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