Term Life Insurance Articles
Why Do Life Insurance Premiums Vary From Company To Company
2009-12-15
If you've been trying to find a good term life insurance quote, you've probably noticed that different insurance companies charge very different prices for policies that include the same sort of coverage. Sometimes, the difference between prices for two companies can be quite substantial, even shocking! You've probably wondered why this is, and whether you're missing some key bit of information that the insurance companies need. If you're inputting the same information, why can't two companies reach a consensus about what your term life insurance policy should cost?
As with much of the insurance world, the answer is a bit complex. When figuring a life insurance premium, many insurance companies use algorithms that are specially developed based on hundreds or even thousands of statistics that have been carefully culled over many years. Statistics are based on everything from age to different health issues to gender, and are designed to determine the likelihood that a policyholder will die within the term of the life insurance policy in question. It's important to remember that term life insurance policies are a bit like gambling - if the term runs out and the policyholder is still alive, the insurance company keeps all of the premiums and pays out nothing. However, it plays out differently if the policy is set up under special terms, like in the cases of a convertible policy or return on premiums policy. Obviously, a life insurance company doesn't want to lose money on a policy. Therefore, if someone is likely to die within the term of the policy that they hold, the insurance companies want to set their premiums very high, so as to ensure that they'll still make an overall profit (or sometimes, to downright discourage a person from buying a new policy in the first place).
The trouble is that the algorithms that insurance companies use are very closely guarded. They're not something that's shared between companies. Each company comes up with its own way to interpret and use statistics, and some companies might completely throw out certain statistics (or introduce new statistics of their own). There's also the matter of investment money. If an insurance company isn't doing very well, it needs to charge more for a policy in order to make a profit because it's making less investments. It's common to see lower rates from larger companies as a result, though this isn't always the case.
If you're looking for term life insurance, it's important to do some research and look at all possible options. Whatever you do, don't assume that all term life insurance policies are the same, and never assume that you'll get the same prices from different companies.
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If you've been trying to find a good term life insurance quote, you've probably noticed that different insurance companies charge very different prices for policies that include the same sort of coverage. Sometimes, the difference between prices for two companies can be quite substantial, even shocking! You've probably wondered why this is, and whether you're missing some key bit of information that the insurance companies need. If you're inputting the same information, why can't two companies reach a consensus about what your term life insurance policy should cost?
As with much of the insurance world, the answer is a bit complex. When figuring a life insurance premium, many insurance companies use algorithms that are specially developed based on hundreds or even thousands of statistics that have been carefully culled over many years. Statistics are based on everything from age to different health issues to gender, and are designed to determine the likelihood that a policyholder will die within the term of the life insurance policy in question. It's important to remember that term life insurance policies are a bit like gambling - if the term runs out and the policyholder is still alive, the insurance company keeps all of the premiums and pays out nothing. However, it plays out differently if the policy is set up under special terms, like in the cases of a convertible policy or return on premiums policy. Obviously, a life insurance company doesn't want to lose money on a policy. Therefore, if someone is likely to die within the term of the policy that they hold, the insurance companies want to set their premiums very high, so as to ensure that they'll still make an overall profit (or sometimes, to downright discourage a person from buying a new policy in the first place).
The trouble is that the algorithms that insurance companies use are very closely guarded. They're not something that's shared between companies. Each company comes up with its own way to interpret and use statistics, and some companies might completely throw out certain statistics (or introduce new statistics of their own). There's also the matter of investment money. If an insurance company isn't doing very well, it needs to charge more for a policy in order to make a profit because it's making less investments. It's common to see lower rates from larger companies as a result, though this isn't always the case.
If you're looking for term life insurance, it's important to do some research and look at all possible options. Whatever you do, don't assume that all term life insurance policies are the same, and never assume that you'll get the same prices from different companies.
