A:

Insurance premiums can be affected by many factors including:

  • type and amount of risk
  • size of deductible
  • amount of coverage
  • age of the applicant
  • applicant's medical history
  • applicant's past and current lifestyle

Insurance policies can be issued at the group or individual level. When group insurance is issued, minimal underwriting is required and the group as a whole is afforded insurance coverage based on a relatively average premium rate determined by the class of people being covered. When individual policies are issued, the insurance company evaluates the individual to determine coverage risk. The process of evaluation, or underwriting, can include the evaluation of many of the factors mentioned above. Upon completion of the underwriting process, the insurer uses a rating table to match the amount of assumed risk with the premium required to implement coverage.

Automobile, homeowner and health insurance policies can be issued at higher deductible levels in order to keep premiums affordable for the insured. Lower deductibles have the reverse effect and cause premium amounts to run higher. Some factors that can affect the size of premium payments for life, health, disability or long-term care insurance include age, smoker or non-smoker status, gender and medical history. Obtaining insurance for these types of policies at a young age will generally lock in lower premiums. Waiting until later in life to take out such policies can almost guarantee higher premiums. Premiums can also be made more affordable by reducing the coverage amount.

For more on this topic, read Insight into Insurance Scoring and Insurance 101.

This question was answered by Steven Merkel.

RELATED FAQS
  1. How is my insurance premium calculated?

    An insurance premium is the money charged by insurance companies for coverage. Insurance premiums for services differ from ... Read Answer >>
  2. What is the range of deductibles offered with various health insurance plans?

    Explore the wide range of deductibles available on various health insurance plans, and learn factors to consider when selecting ... Read Answer >>
  3. How do I calculate insurance premium tax?

    Find out how your health insurance premiums can affect your income taxes, including when you may be able to deduct premium ... Read Answer >>
  4. What is term insurance?

    Term insurance is a type of life insurance policy that provides coverage for a certain period of time, or a specified "term" ... Read Answer >>
  5. Can your insurance company cancel your policy without notice?

    Learn about your rights as an insured when it comes to your insurance policy being canceled, including how to access your ... Read Answer >>
  6. How does adverse selection affect insurance premiums?

    Find out what causes adverse selection in the insurance market and why it drives up premiums for all policyholders. Read Answer >>
Related Articles
  1. Insurance

    All About Impaired Risk Annuites and Insurance

    What are impaired risk insurance products and understanding life insurance rate classes, table ratings and flat extra premiums.
  2. Insurance

    What To Expect When Applying For Life Insurance

    Before jumping into a policy, check out these tips on how to score the best plan for you.
  3. Insurance

    Life Insurance: Putting A Price On Peace Of Mind

    Would your death leave loved ones financially stranded? Find out how to ease your mind and keep them protected.
  4. Home & Auto

    Intro To Insurance: Conclusion

    By Cathy ParetoInsurance is an integral part of any personal financial plan. The type of insurance and the amount of coverage you obtain all depends on your unique financial and family circumstances, ...
  5. Home & Auto

    6 Ways To Save On Insurance

    Love it or hate it, insurance policies are a necessary expense in everyone's life. Learn the top tricks for saving money on your various insurance policies.
  6. Investing

    7 Issues to Consider When Determining Life Insurance Coverage

    Seven issues to consider when buying life insurance to ensure the coverage is tailored to meet your personal financial situation.
  7. Insurance

    Understanding Taxes on Life Insurance Premiums

    Learn about the tax implications of life insurance premiums, including when they might be taxable and whether they are tax deductible.
  8. Options & Futures

    Permanent Life Policies: Whole Vs. Universal

    If you're looking for life-long security, choosing between these two is the key.
  9. Investing

    Advising FAs: Explaining Life Insurance to a Client

    Life insurance was initially designed to protect the income of families, particularly young families in the wealth accumulation phase, in the event of the head of household's death.
  10. Insurance

    4 Things That Keep You From Getting Life Insurance

    We look at four common reasons people give for not applying for life insurance, and see if they're legitimate.
RELATED TERMS
  1. Actuarial Equity

    The calculation of an insurance premium based on crucial factors ...
  2. Insurance Premium

    The amount of money that an individual or business must pay for ...
  3. Premium

    1. The total cost of an option. 2. The difference between the ...
  4. Personal Lines Insurance

    Property and casualty insurance products for individuals that ...
  5. Annual Renewable Term (ART) Insurance

    A form of term life insurance that offers a guarantee of future ...
  6. First Dollar Coverage

    An insurance policy feature that provides full coverage for the ...
Trading Center