Term Life Insurance - Understanding How Rates Are Calculated

Why are so many insurance companies' prices so different when you start comparing quotes on term life insurance? Many people receive a bit of a shock when they start looking at quotes. They will see a wide range of premium prices for what they think is the same insurance amounts.

The differences can be very significant. Some policies cost hundreds of dollars more every year when compared to others. Why are they so different? That is something you need to understand when looking for term life.

All life insurance companies base their quotes on how risky an insurance policy may be. Some people think a company looks at them as individuals and makes their decision on that person's individual characteristics. However, that is not the case. Life insurance companies look at a person as part of a group.

That group consists of people who are the same age and gender and who have the same physical characteristics and family history. That group's statistics on life expectancy and death rate will determine how much any person in that group pays for a policy. When comparing quotes on term insurance, you need to understand this fact.

Insurance companies use the same statistics across the board. The difference in premiums comes from how the insurance companies use that data in calculating their risk. One insurance company may rate a total non-smoker as a lower risk that a former smoker who quit two years ago.

Another company may rate them the same. That difference in rating would help explain the differences you would see between the quotes from those two companies. When comparing quotes, you need to understand how your current and past behaviors work in the process.

Another factor in determining premium prices is competition. Insurance companies are in the business to make money. In specific demographic groups, they may be competing against other companies more heavily than in other groups. People in their 20s and 30s quite often take out policies for the first time.

This makes it a very competitive age group. People in this group may see some companies offering long-term policies at very competitive rates. When comparing quotes, you can take advantage of the competition among insurance companies. Saving money is a good thing for most people when they start looking at life insurance. It can add up significantly over time.

By: Mark Prip

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