Understand Life Insurance

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How Life Insurance Premiums are Calculated

One need only watch the news to realise why it is important to make provision for your loved ones after your death. Whether you pass away from natural causes, violence, or are struck with a dread disease, getting life insurance will ensure that those who depend on you will not be left with debts or other expenses. While life insurance premiums may seem arbitrary, it is anything but. Insurance premiums are calculated based on specific risk categories. Charging different premiums to different risk categories ensure that each policy holder pays a fair premium.

The risk factors taken into account when taking out a life insurance policy may include age, gender, income, occupation, access to healthcare, lifestyle factors, and pre-existing conditions. ASISA states “By applying the rating factors insured lives are divided into groups where the risk of dying is similar. This enables the insurer to charge a fair premium”.

Why are these risk factors taken into account?

Statistics are used to determine if a person has a bigger or smaller (statistical) chance of dying in a set time period. For instance, gender is used because women, on average, live longer than men. A higher income also means that a person will most likely have access to better healthcare. If you have been diagnosed with any medical condition, it may mean that you fall in a higher risk group than someone without that medical condition. Your occupation may be taken into account to determine if the work you do places you at a higher risk of death. For instance, a police officer’s job may be deemed to be more dangerous than that of an admin clerk working for a company.

Do I have to disclose everything?

It is your duty to disclose any information required by the insurance company. If it is found that there has been non-disclosure or misrepresentation of any necessary information, the insurer is entitled to refuse to pay claims, may recover monies already paid in claims or may cancel the benefit. This is why it is very important to read all documents very carefully and make sure that you understand everything stated there.

By taking out a life insurance policy with a trusted insurer, you will have the peace of mind of knowing that your loved ones will be taken care of financially after your death.



Carin Marais writes web articles, blog posts, and fiction. With interests ranging from mythology and books to pop culture and technology, her writing covers diverse subjects. Some of her articles include The Top Reason Why You Need Insurance,  Live Your Own Hero’s Journey, Dare to Live Life Every Moment, and 5 Tips for Surviving Change: A New Job. Links to her writing and her contact information can be found at www.carinmarais.blogspot.com, or follow her on @CarinMarais.