Have you ever wondered how life insurance providers calculate the insurance cover premiums they quote you when you apply for a policy? Have you ever asked yourself why your premiums are so high yet your partner’s premiums are much lower, even though you’re around the same age?
In most cases, life insurance providers use the information you put on your life insurance application form to determine how likely you are to die during the term of your policy and hence the monthly premium you’ll pay. If you admit to having pre-existing medical conditions or you indulge in what are termed unhealthy lifestyle factors, then you are seen to pose a greater risk to your insurance provider than if you have perfect health which is maintained with the help of a healthy lifestyle. In other words a healthy body and a healthy lifestyle equal less risk to your insurance provider, lower quoted premiums and more money staying in your pocket.
But what are the factors that are considered to be unhealthy in terms of lifestyle and how can they be changed to reduce your life insurance premiums?
Every human being has an ideal weight range. While you remain within this weight range you are considered a ‘healthy’ weight and this alone will help to keep your insurance premiums down. If you inadvertently become overweight or obese you increase your risk of developing type 2 diabetes, high cholesterol, high blood pressure, heart problems (including heart attack and stroke) and fatty liver. By themselves, these medical conditions can lead to serious problems but if two or three of them develop together they can often be life-threatening.
Obviously when you tell your insurance provider that you are overweight they will factor this into your risk assessment and you’ll be quoted a much higher premium than if you’re within your ideal weight range.
The solution: show your life insurance provider that you are within your healthy weight range. If you’re currently overweight or obese then seek medical advice with regards to starting a healthy diet and exercise regime. Eating healthy, low fat foods and exercising for around 30 minutes each day will inevitably lead to weight loss…and lower life insurance premiums.
Smoking is considered to be an unhealthy lifestyle factor by life insurance providers. As a result a smoker will pay more for their life insurance policy than a non-smoker.
There is more than a decade’s worth of medical evidence that says smoking is related to certain types of cancer but smoking can also cause emphysema, asthma, bronchitis and several other conditions that are known to contribute to premature death. In simple terms then, smoking greatly increases the risk of you dying while covered by the terms of your policy, thus requiring a pay-out by your insurance provider.
The solution: the obvious solution is to quit smoking although this is often easier said than done. If you can manage it though you’ll find your health improves, you save money on the cost of cigarettes and you save money on your life insurance premiums. It is worth mentioning that a lot of Australian life insurance providers specify that you need to have quite for a minimum period e.g. 6 months, 1 year etc. before they will amend your premiums.
Excessive alcohol consumption
As with smoking, the consumption of unhealthy amounts of alcohol is also seen as a negative lifestyle factor by life insurance companies. Heavy drinking on a regular basis can lead to all kinds of medical problems, including cirrhosis of the liver, fatty liver and possible kidney failure – all of which can contribute to premature death. And then of course there is the risk of you doing something silly such as drink-driving and causing a fatal crash.
The National Health and Medical Research Council for Australia recommends no more than 2 standard drinks (one standard drink = 10 g) per day to remain healthy, and so it is this amount that life insurance companies use as their standard. Anything above this is seen as unhealthy and it will affect the amount you pay in terms of your premiums.
The solution: limit yourself to 2 standard alcoholic drinks per day. Obviously on special occasions it will be necessary to exceed this amount but to remain healthy in the eyes of an insurance provider you should average no more than 2 per day. If you can cut down on your alcohol intake you will benefit from lower premiums, but more importantly you’ll lose weight and become healthier in the process.
It may seem strange but a lot of Australian insurance companies take hobbies and pastimes into account when calculating life insurance premiums. Activities such as rock climbing, hunting in the outback, scuba diving, hang gliding, motor boat racing etc. all have the potential to end your life while you have insurance cover, and so they will add to the amount you pay for your policy. The degree of danger your hobby poses to your life is determined by the underwriter and will be reflected in your premiums.
The solution: unless you want to swap your ‘dangerous’ hobby for something a bit more sedate there is very little you can do to change the effect it has on your premiums. In some cases, for example with scuba diving, you can enrol on professional courses that give you more experience and this may reduce your premiums slightly. A better bet though is to concentrate on the other aspects of your lifestyle that you can change and that may have a positive effect on your life insurance policy.
In short then, changing your lifestyle to improve your health will not only make you feel better within yourself, it will also help to save you money with regards to your life insurance policy. Chances are you’ll never have the health of a professional athlete but the closer you can get the less risk you’ll pose to your insurance company and the cheaper they’ll make your premiums.