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How Life Insurance Quotes Are Determined

When shopping for life insurance, there are numerous types of policies that are available in the marketplace today. Consumers can also choose from a number of other variables that can help them in narrowing down their coverage in order to best suit their specific goals and needs.life insurance family holding hands

In fact, in some ways, choosing life insurance can almost be like picking out the options on a new car – and the pricing on the insurance policy’s premium can also be the same. There are many variables that go into the price of an insurance policy – and it is important to have a good understanding of the primary factors, as they can all have a big effect on what you will pay for your coverage.

Policy Type

One of the biggest determining factors in how life insurance quotes will differ is in the type of policy that you purchase. Overall, there are two primary categories of life insurance. These are term and permanent.

With term life insurance, you obtain pure death benefit protection. This is why term life is often referred to as the most basic type of life insurance coverage that there is. Because of this, Term insurance is typically the least expensive form of life insurance – especially for those individuals who are young and in relatively good health.

As its name implies, term life insurance will last for a specific period, or “term” of coverage. Usually, term policies can be chosen to last for anywhere from one year to 30 years, depending on the age and health condition of the insured. Certainly, the longer the length of the policy’s term, the higher the premium is likely to be.

Once the “term” of the policy has expired, the policy will end. At that time, if the insured wishes to still be covered with life insurance, he or she will need to either renew the policy or purchase a new life insurance policy. They will need to do this at their then-current age and health status. Because of this, the premium on the new life insurance coverage will likely be higher – and in some cases, the individual may not be insurable if he or she has contracted an adverse health condition.

For those who are seeking to obtain a large amount of death benefit for a certain period, term life insurance can typically provide just that. For example, if a person wants to ensure that their home mortgage will be paid off for their spouse and children should something happen, they could purchase a 30-year term life insurance policy at the time they obtain their mortgage. Then, they will be assured of having death benefit protection throughout the time that they have a mortgage balance (provided that they continue to pay their life insurance policy premium).

Permanent life insurance is different from term life insurance in that permanent coverage includes both death benefit protection and a cash value component. This cash value is allowed to grow on a tax-deferred basis, meaning that there are no taxes due on the gain in the cash value until the time of withdrawal. Over time, the cash can essentially grow exponentially – and, the policyholder can either withdraw or borrow the cash for whatever reason they desire.

With permanent life insurance, there is no particular “term” or policy length. Therefore, once a person purchases a permanent life insurance policy, the policy can remain in force for the rest of the individual’s life, provided that they continue to pay their premium. Because of this, and because a portion of the premium goes to fund the cash value, the premiums on a permanent life insurance plan will typically be higher than those of a comparable term life insurance policy. However, over time, the amounts tend to balance out.

Permanent life insurance can be a good option for someone who plans to keep their life insurance in force for their entire – or whole – life. Permanent life insurance can also be a good choice for those who may want to use the cash value as an alternate funding vehicle for retirement savings or college savings for a child or grandchild.

Face Amount / Death Benefit Amount

Another component that can have a big effect on the amount of your life insurance quotes is the face amount, or death benefit amount, of the policy. The death benefit that is chosen for one’s life insurance policy can vary a great deal. Some policies are small, with death benefits of only a few thousand dollars – or less – while others can be many millions of dollars.

With this in mind, just like with most other products or services that are purchased in the marketplace, the higher the amount of the policy’s death benefit, the higher will be the life insurance quote.

Policy Riders

Today, most life insurance policies will also allow various add-ons, or riders, to be placed on the policy so as to customize better the plan to meet the need of the insured. Some riders that are available on life insurance policies can include the following:

  • Disability Income Rider – This rider allows the policyholder to collect a regular income from the insurance company if the insured becomes disabled and is unable to work. The policy usually will specify the amount of income, as well as whether it will be paid for a particular amount of time or, for the total length of the person’s disability.
  • Term Conversion Rider – With a term conversion rider, the policyholder can convert a term life insurance policy into a permanent life insurance policy without having to undergo a medical exam. This type of coverage can be attractive to those who are young and need coverage but may not have enough funds to secure all of their needed coverage with permanent life insurance.
  • Accelerated Death Benefit Rider – This rider allows the insured to collect a specific amount of the policy’s death benefit if they become terminally ill and has a short life expectancy, being a year or less. The policy will usually state how much of the death benefit will be available before death. The proceeds can be used for any expense that the insured wishes, whether that be medical bills, living expenses, or even a vacation.
  • Return of Premium Rider – If the insured lives to the end of a term insurance policy’s length, then they will receive a return of their premiums paid in. This rider typically requires an additional amount of premium to be paid.

Health Condition of the Insured

Another very important component that will have an effect on life insurance quotes is the health condition of the insured. When applying for life insurance, the underwriters at the insurance company will typically look at some different factors to determine whether or not the applicant will be able to qualify for coverage. If so, the underwriters will then decipher what premium price to charge the individual based on the amount of risk that he or she presents to the insurance company.

The components that the underwriters typically review when a person applies for life insurance will include the person’s age, height and weight (more specifically, the person’s weight as it relates to their height), smoking habits / tobacco usage, alcohol usage, overall health history, family health history, occupation and income (if applicable), and whether or not the person participates in any dangerous habits or hobbies (such as rock climbing or scuba diving).  When we work on getting a smokers life insurance policy we always talk to the client about quitting and getting new quotes in two years.  A smoker can get approved for non-tobacco rates after two years of being smoke free.

Although all insurance companies may differ somewhat, most will follow a similar route in that they will have primary categories of insureds. These include Standard, Substandard, and Preferred.

If an insured falls into the Standard rating category, it essentially means that he or she is considered to be an “average” risk to the insurance company. In this case, the individual is in a similar health status as the other insureds who are of “average” health, height and weight.

If, however, a person is still insurable, yet they have some adverse health conditions that may deem them as being an impaired risk client, then the insurance company will oftentimes place the person into the Substandard rating category. In this category, the individual is usually charged a higher amount of premium for their policy in return for the insurance company taking them on as a higher risk.  A good example would be when a carrier issues life insurance for diabetics.  While these individuals may be in otherwise good health the risk of other health conditions always causes their policies to be more expensive.

Conversely, if an individual is in excellent health, with an excellent overall health history and excellent family health history, he or she may be placed into the preferred risk category. Here, the person is considered to be less of a risk than even the average insured. Therefore, they will be charged a lower amount of premium.

Insurance Company

Even with all of the above criteria being equal, there is yet another factor that can have a big effect on how life insurance quotes are determined – and that is the insurance company itself. In fact, often, when comparing life insurance quotes, individuals will find that policies that contain nearly identical features and benefits will have vastly different premium prices – simply based on which carrier is offering the policy.

In some cases, an insurance company may have a lower amount of overhead and/or administrative charges, and because of that, the company can charge a lower amount of premium on its policies. Conversely, if the company has a high amount of overhead – or if the insurer has had a high claims payout history – it may need to make up for this by charging a higher amount of premium to its current policyholders.

In any case, it is always important to look at the financial strength of the underlying insurance company before you purchase life insurance. This is because you will want the company to be there in the future when it is time for the claim to be paid out.

There are several rating agencies in the industry such as A.M. Best, Standard & Poor’s, and Moody’s that will assign ratings to insurance companies. These ratings are based on factors such as financial strength of the company, claims payout, and reputation in the industry. In most cases, these ratings are letter grades similar to those on a report card. It is important to stick with insurance companies that have high grades in the “A” range.

How and Where to Compare Life Insurance Quotes

If you are ready to compare life insurance quotes and are looking for a way to do so quickly, easily, and conveniently, we can help. We work with many of the top rated life insurance companies in the market today, and we can help you to obtain the information that you are seeking – right from your home computer. This means that you don’t have to meet in person with a life insurance agent – saving you a great deal of time.

Having all of the information that you need in order to make a direct comparison can also save you the frustration of making call after call to different insurers, or worse yet, having to drive all over town filling out separate coverage applications. To get the process started, all that you need to do is use the form on this page.

If you find that you have any additional questions regarding the life insurance quotes that you need, or about life insurance, in general, please feel free to contact us directly. Our experts are available to assist you with any question or concern that you may have. We want to ensure that you have the details that you need prior to moving forward with this important life insurance purchase. We can be reached by calling, toll-free, 888-229-7522.

Having life insurance can often mean the difference between your family being able to move on, or struggling to survive – so it is essential that you make the right choice when purchasing your coverage. Please feel free to contact us regarding quotes, coverage, or policy features. Call us today. We’re here to help.


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