How Are Your Insurance Premiums Determined?06 Mar 2021
An insurance premium is the amount charged by your insurance company when you purchase a policy from them. You pay this either annually, half-yearly, quarterly or monthly.
So how does your insurer decide how much your premium should be? In general, they will assess your life expectancy by taking the following factors into consideration:
1. Your age
This one is a no brainer. Basically, young and healthy = lower premiums, because it is less likely that your insurance company will have to pay you a claim while your policy is active.
Insurance premiums will become higher with each passing year, as your chances of developing health problems increases as you get older, along with the likelihood of your insurer having to pay out during the policy’s term.
2. Your gender
Yes, men and women do pay different premiums for the same type of insurance.
For life insurance, men typically pay more than women because they have a shorter life expectancy - meaning there is a higher chance that an insurance company will need to fulfil the death benefit payout for males.
On the other hand, women get charged more for health insurance because in general, they have a longer life expectancy than men, making them more likely to claim from their healthcare policies for a longer period of time.
3. Your health and medical history
If you have a pre-existing illness or injury, you will most likely be charged a higher premium, as your risk of hospitalisation and medical claims are increased.
You’ll also have to pay more for your health coverage if you are a smoker, as your chances of developing heart disease and lung cancer are higher.
It’s important that you declare your health condition upfront when you sign up for your policy. Otherwise, you risk having your claim rejected when your insurer discovers you were not entirely honest. You may have to fork out more for your premiums now, but this will ensure that you and your loved ones won’t have to pay a heavy price, should the unexpected happen.
4. Your job
Alongside your age, gender and health, your insurer also uses your occupation to determine how much you should pay for your coverage.
If your work involves a high degree of risk, it’s almost always a guarantee that your policy will cost more. Some of these occupations include jobs in oil & gas, aviation, engineering and public safety.
5. Your lifestyle
Source: Mad Men
The lifestyle habits you practise will also affect your insurance premium. You can expect to pay more if you:
a) Smoke and consume alcohol regularly
b) Are obese / lead a mostly sedentary lifestyle
c) Have been involved in road accidents or traffic violations
d) Are into hobbies like scuba diving and skydiving, which involve high risks to your life.
So in summary, your insurance premium will depend on how high or low your life expectancy is.
How much you pay for financial protection is also determined by the type of insurance product and the amount of coverage you select. For instance, a term life policy is less expensive compared to a whole life policy or investment-linked policy.
Our Gibraltar BSN Agents can provide additional help in deciding which policy you should choose and how much coverage you need based on your budget. Whenever you are ready to secure your financial protection, drop us your details here and we will be in touch.