What determines the cost of insurance protection?

by TK

The price of insurance is one of the main concerns among people who avoids considering insurances. Several factors determine the cost of an insurance policy. A cheap life insurance or income protection insurance policy doesn’t necessarily mean it’s an inferior one. Also, the most expensive policy may not be the best to suit your needs.

The price of an insurance policy is generally a reflection of how the underwriter views the risk of you claiming on that policy. As each insurer will attribute their own measure of risk to each element of your lifestyle, personal habits and work situation, your overall risk profile can fluctuate between one insurer and another.

Life insurance risk assessment

One insurer can decide you are a greater risk than others, which directly impacts your policy’s cost. The underwriter determines your overall risk by examining several factors, such as your age, gender, medical history, current health status, whether you are a smoker or non-smoker, your occupation, and your recreational activities.

Once you understand how many elements are involved in assessing an individual’s risk, it’s easy to see how insurers can arrive at a different figure when determining your overall risk profile.

Factors that influence the cost of your life insurance policy

From the insurer’s side, a few internal factors can affect your policy’s cost. Larger insurers may be able to offer a more competitive rate because of their economies of scale. If you already have another policy with the same insurer, they may offer you a better rate on any additional policies you decide to take out with them.

If a company specialises in a certain type of insurance, the volume of business they do in that specific area may mean they can offer a lower premium to their customers than insurers with a broader portfolio of products.

Risky activities may increase the life insurance cost

Recreational activities can also result in variations in insurance quotes from one provider to another. Each insurer will attribute its own level of risk to each particular pastime. Risky activities such as scuba diving, skiing, skydiving, bungee jumping, and mountain climbing may add to the cost of an insurance premium.
Insurers tend to categorise risky activities into three areas:

  • Speeds- i.e. skiing, motor-sport
  • Heights – i.e. skydiving, bungee jumping
  • Depths – i.e. scuba diving

Just how much each activity will add to a policy’s overall cost will differ from different insurers. So, comparing insurances to find out who provides the most appropriate cover for your particular interests could help you find the most comprehensive cover for you.

Some insurers do not offer plans for those deemed to be high risk, whilst others offer plans specifically for those who participate in those types of activities. If you take part in a potentially high-risk activity, check if the insurer considers it risky and if it’s something they will cover when you’re looking to take out a policy.

It’s important to ensure that any policy you take out meets your individual needs. Cost is certainly an important factor to determine the insurance. However, what product is being offered is also important. I reckon a proper need analysis is must to find out the suitable product.

If you’re unsure how much Income Protection Insurance or Life Insurance cover you need, I can help with my professional advice.

Note: *The above information provided is general in nature. It is not to be relied upon as personal financial advice as it has not considered your personal circumstances, needs or objectives.

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Life can change in a moment - TK Finance Blog December 14, 2020 - 7:56 am

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