The premiums for insurance are generally affected by the amount of risk associated with the insured event. Hence, if the risk is low, insurance premium will be lower too. However, lower premiums are not the only factor to be considered while availing an insurance policy.
The whole reason behind purchasing an insurance policy is to get yourself and your loved ones insured against any risks or damages that they can face. So, it is very important to understand the factors that are considered by insurers while setting the insurance premiums.
Crucial Factors to Consider for Determining Insurance Premium
One essential factor is your age when you apply for an insurance policy. It is advisable if you purchase an insurance policy in your younger years. You would have to pay higher premiums as you grow older. This is because, the risks associated with your health keep increasing with your age. However, younger people within the age limit of 16 – 25 years are at a considerably higher risk. Hence, the insurance premiums for the people in that age group are higher. Also, in this age group men are prone to pay higher premium than their women counterparts. However, when they reach an age of 40 years, they would be paying a premium almost similar to the senior citizens. Hence, it is recommended to purchase insurance between 30 to 35 years.
As elaborated earlier, women generally pay lesser premiums than men. However, the scenario isn’t the same in all types of insurance. In health insurance, women pay more premiums than men. Whereas, men pay higher premiums in car or motor insurance policies. These can be based on the stereotypical statistics with men opting for auto insurance more than women because they have vehicles or learn driving as compared to women. Whereas according to studies, women tend to live at least five years longer than men, hence they have higher insurance premiums to pay. Hence, when men buy health insurance.
Occupation and Location
Some occupations like soldiers, pilot, navy or marine personnel, miners, and people working in gas industry have higher risks associated than the people working for regular office jobs. Hence, the insurance premiums for the former individuals would be higher than the latter ones. Similarly, if you are residing in a location which is more prone to natural calamities like floods or tsunamis – insurance premiums would be charged higher.
Height and weight are also considered when you apply for an insurance policy. Overweight people have more risks associated with health so they would have to pay higher premium. Similarly, people who regularly consume tobacco or alcohol usually have higher risks than the people who don’t. They are prone to more health risks and have lesser life expenses.
Hence, they would be charged more premium than others. If you have consumed tobacco in any form in the last 12 months, you’ll be considered as a smoker. It doesn’t matter how many cigarettes you smoke per day. On the other hand, if there is medical history where you have suffered from any prolonged diseases like cancer or diabetes – the premium would increase.
However, if there are no effects of relapse in the next five years, premium can be brought down a little bit. Similarly, if your family had had any dangerous diseases in their younger years, chances are you might inherit them too in your later years. Hence, premium might increase due to that reason.
If you are interested in adventure of dangerous sports like skiing, skydiving or racing you are more prone to death compared to the others. Other reasons include number of dependents, marital status, financial history, etc. which also affect the premiums.
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