Life insurance is a game based on probabilities. The life insurer offers a stake – or sum insured – against a monthly bet. The sum insured is paid on the death of the insured. As with a casino, the insurer ensures that the odds are always in its favour.
When a person takes out life insurance, the insurance company is taking a carefully measured risk. The life insurer’s risk is determined by age, gender, demographics and health.
As a rule, the risk of death increases each year as a person grows older. The probability of dying at the age of forty is much greater than at the age of twenty-five.
Women live longer than men. This does not mean that every woman lives longer than every man, but a because women present a lower risk of death at each age, insurance companies offer more favorable rates for women.
Nationality and socio economic class play a big part in determining a person’s life expectancy. Wealth significantly increases your chances of survival thereby lowering the risk to the life insurer.
Most of the premiums charged for life insurance are fairly standard for a life insurer for a specific population for each age group and gender. But every life policy is approved only after certain medical questions have been answered. Medical and lifestyle factors may change the risk profile of an individual significantly. Lying on these questions will probably result in any subsequent claim being refuted!
Smoking significantly increases the risk of death. Insurance companies often add five years to your age if you are a smoker. If you sign up as a non-smoker, you must have stopped smoking at least twelve months prior to signing up for the policy. While life insurance accepts your health status as the inception of the policy as your risk profile, smoking is an exception. If you start smoking while the policy is in force, you are obliged to inform the insurer, and will probably be faced with a higher premium. Failure to inform the insurer that you have started smoking will provide sufficient grounds to repudiate any subsequent claim, whether or not it is related to smoking.
An individual’s health record and the longevity of their parents are important. A history of heart attacks and lung disease may influence the premium by a significant amount. But good health for a period of five years after the event could mitigate the risk significantly. Kidney and liver diseases present major risks to the insurer and could result in a much higher premium.
One of the major health risks facing everyone today is the risk of cancer. Although the success rate in fighting and defeating cancer has increased dramatically, it still scares the life insurance companies greatly. If you have successfully defeated cancer over five years ago, this will act in your favour.
Chronic diseases such as diabetes and high blood pressure are taken very seriously. While many live with diabetes for many years, the disease still presents a risk to insurers and may cause a steep increase in the premium charged.
Almost any medical condition will present an increased risk to the insurer. Any one of these conditions will result in more expensive life insurance. Family medical history may also be taken into account when assessing the risks.
Taking out life insurance before you have any health problems will ensure that you are covered at lower rates. But most importantly, do not lie or omit medical details on a life insurance form. Even the smallest white lie could result in losing any cover.