Insurance: A life insurance policy is primarily a legal contract between the insurance company and the policyholder, which provides financial assistance to the dependents in the event of the death of the policyholder. In lieu of this guarantee, the customers have to pay a premium, which has to be paid either all at once or over a fixed period of time. The mode of payment of this premium is decided based on the financial flexibility of the policyholder. Now, insurance companies calculate premium in four ways. Therefore, for the same sum insured, two individuals may have to pay different premiums, the main reasons behind which are these.
underwriting process
Most insurance products require some underwriting. “Underwriting” is the term used to define a term life insurance application, which decides whether the policy should be issued or not, based on the risk profile of the policyholder.
The term ‘risk’ here means that the insurance company is committed to provide financial assistance to the policyholders in case of any accident.
Now, the risks associated with a particular application are viewed differently and classified by each insurance company.
Many factors work in the underwriting tool such as your age, gender, job (how dangerous your profession is), lifestyle style (smoker or not), policy tenure, other hereditary diseases (diabetes, cancer etc.) which are already present in the family. be.
death rate
The most common advice given regarding life insurance is that it should be taken at an early age. This is because the premium rate of insurance is very low at a young age, so it is said that instead of 42 years of age, insurance should be done at 22 years.
The simple answer behind this is that with age, physical problems and other dangers increase in life. The risk of getting many diseases also increases.
With age, your immune system weakens and it loses its ability to fight disease quickly.
Apart from this, when you buy life insurance at the age of 42, you are at risk of getting diseases even earlier. Due to this, the insurance companies are more at risk and they charge higher premiums to compensate for it.
benefits of insurance companies
The premium on an insurance policy does not depend solely on the policyholders, while some are based on the insurance companies. Insurance companies have a cost structure for policy writing, risk assessment, operational cost and investment return.
Even the cost of policy documents, insurance agent’s commission and other expenses are also added by the companies. Through this, the companies that want to earn profit from insurance, they get it. And this is included on the cost of your insurance premium.
Every insurance company has its own profit margins, which they have to achieve. Now it can be easily understood that why companies charge different premiums for the same amount.
contingency fee
Contingency fees also constitute a small part of life insurance premiums. Although only a small part of this fee has to be borne by the policyholder, but it plays a big role in making finance management of companies.
In case of unforeseen situations like corona pandemic, there were an unexpectedly large number of claims in a year.
