Tuesday, May 8, 2012

Your life insurance risk profile

As part of your financial plan …as part of your estate plan …as essential protection for your family – any way you look at it, life insurance is important.  But do you know that how you live your life can have an impact on the cost and availability of insurance?

It works like this: To obtain insurance, you must qualify—meaning that you must provide evidence of insurability on a range of health, medical, lifestyle and other risk factors through a process called underwriting.  Taken together, they add up to your life insurance risk profile.  Some risk factors you can’t control but you are much more likely to get insured at rates that fit your budget by lowering those you do control:
  • Age. Intuitively, you probably know that the older you get, the higher the premiums for your insurance. Although you cannot control your age, you may be able to control some of the other factors that will affect your premium. Remember, the younger you buy your insurance, the lower the premium will be.
  • Smoking. You can anticipate higher insurance costs for using any product that contains nicotine, including cigarettes, chewing tobacco, snuff, pipe tobacco, cigars and even nicotine supplements like patches or gum. Something to consider: with most companies you are considered a nonsmoker after 1 year of quitting.
  • Health factors. Your rates may be affected if you have a history of some medical conditions, dependent on the severity, number of occurences and your current health. In many cases, a standard life insurance policy can be issued.
  • Family history. Many medical conditions are hereditary – especially cancer and cardiovascular disease. If your parents or a sibling died of cancer or heart attack prior to age 60, insurance companies may consider you to be of higher risk. But your healthy lifestyle and other health factors can have a positive effect on your insurability and rates.
  • Hobbies and avocations. Scuba diving, motor vehicle racing, skydiving, mountain climbing and any type of flying are considered high risk and if you engage in any of them, you may face higher premiums or an exclusion of coverage while participating in those activities.
  • Driving record. Multiple driving violations, accidents and convictions, especially for driving under the influence of drugs or alcohol will seriously affect your insurability.
  • Alcohol and drug use. If you are a recreational drug user, or have been treated for these substances, will likely affect your insurability and rates.
  • Travel. Short term travel for vacation usually doesn’t adversely affect your rates. But continuous or extended travel to specific countries where there is unrest could increase rates. An exclusion of coverage may be applicable, but will depend on several factors.
  • Financial situation and history. If you apply for a large amount of insurance, you may need to disclose specific financial information such as your income level, net worth,assets and liabilities, otherwise only an estimate is required. Detailed financial information is required to obtain business insurance.
With personal life insurance, full disclosure of your health at time of application ensures that the insurer has determined your risk and is providing the insurance coverage that is tailored to your individual situation. Unfortunately not all individuals can purchase insurance at standard rates. That is why it is critical you work with a professional advisor who can help you get the life insurance coverage you need at a fair and equitable price based on your situation.

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