Life Insurance Questions & Answers: Rates and Costs
Rates and Costs Q&A
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How does life insurance work if you have a dangerous job or risky hobbies?
Dangerous jobs and hobbies generally raise the price of life insurance. The amount depends on a variety of factors. These include, the specific activity, how often you do it, the training you have and the level of risk associated with the activity. A good example is underwater diving. A recreational diver that only dives 50-50 feet a few times a year will most likely receive a better price than someone who cave dives or works as a diver and spend large amounts of time underwater.What happens to your life insurance if you stop paying premiums?
In general if you stop paying on a term policy, the insurance benefit goes away and the policy is cancelled. There is no refund and no death benefit. With a permanent policy it will depend on your specific policy. If you have accumulated some cash value in the policy you may receive an automatic policy loan to make the premium payment for you. Some policies will provide for an amount of reduced, paid up insurance based on the premiums you have paid. Some policies may provide an extended term policy while the cash value is used to pay the premium. Understanding how your policy will work is important since all policies are not exactly the same.
How do life insurance companies decide your premium rate?
A lot of people think life insurance pricing is random, but it’s actually based on risk.When an insurance company looks at your rate, they’re basically trying to answer one question: “How risky is it to insure this person right now?”
They’ll usually look at things like your age, overall health, medications, family history, height and weight, tobacco use, and sometimes your job or hobbies if they’re considered higher risk.
For example, a healthy 30-year-old who doesn’t smoke is probably going to pay a lot less than someone in their 50s with major health issues. That doesn’t mean you can’t get coverage if you have health concerns, it just may change the price or options available.
They may also ask about things people don’t always think about, like driving history, travel habits, or whether you participate in risky activities.
The biggest misconception is that if you’re not in “perfect health,” there’s no point in applying. That’s not true at all. Different insurance companies look at health conditions differently, which is why it helps to work with someone who can shop around and find the best fit.
At the end of the day, the younger and healthier you are when you lock something in, the more affordable it usually is. That’s why a lot of people wish they had done it sooner.
Why do so many people let their life insurance policies lapse?
People allow their policy to lapse for different reasons. The most common is they don't feel they can afford it anymore. This could be do to the loss of income or an increase in other expenses. This is why it is important to review your policy each year, not just to check on the price, but to revisit the need that you have and the protection that you are providing for your loved ones. If we stop seeing the value and only see the price, we may give up one of the most important products we could ever purchase.Have a Life Insurance Question of Your Own?
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