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Life Cover - How is it calculated?

by Joe Mulligan

A Life Insurance policy can cost as little as €10.10 (inclusive of  a 1% Government Stamp Duty) but this won't be for everyone as every individual and their circumtances are unique, and the final cost is dependent on a number of factors. This is a complex area and one that Actuaries with their computer programs spend a lot of time on, so that we can keep it simple and boil it down to a couple of key points that effect the cost of life cover and what you might pay.

1. Age

The older you are, the higher the risk you are perceived to be for a life company, so you pay more for life cover. Its obvious I know, but then it raises the question, why not take out life cover, serious illness cover or income protection when you are younger and it's cheaper? In our experience, people just don't want to think of the 'what ifs' and the bad things that might happen, leaving life cover policies and such likes on the long finger, but that is life! 

2. Gender

Traditionally, women cost less to insure than men, because they usually live longer and some thought this to be a tad unfair. A few years ago the EU Gender Directive was brought in to level the playing field and equalise the cost for both genders. That is not to say that it still does not apply. It's all about risk from an actuarial pint of view, so if a woman costs less to insure than a man, the premium will reflect it, albeit not as much as prior to the aforementioned directive.

3. Smoker Status

Smoking is proven to be bad for your health and not good for life expectancy, so if you smoke you are going to pay more for life cover and other protection products, a simple fact of life. But that doesn't have to be the final chapter. If you stop smoking for at least 12 months you can reapply for cover to be considered as a nonsmoker and this does work. Such programs as are proving to be of great help for people achieving their goals.

4. Height/Weight Ratio

This can be a delicate subject to broach with a customer but one that has to be discussed. A person may be in good health, but if they are overweight for their height, they can be perceived as a future health risk. This is where the importance of underwriting really kicks in as the underwriters consider a case on its merits. If someone is deemed to have a negative height weight ration they may be offered a policy at an increased premium to reflect the perceived risk i.e special terms, but again as with someones smoker status, if someones circumstances change they can reapply to be considered for ordinary rate acceptance.

5. Family Health History

We are all indviduals but also a sum of our genetic history. A standard question across every life company covers your family history, generally specific to your parents and siblings to identify if there are any pattern of particular illnesses (e.g. heart related, cancers) before or after certain ages. It gives an underwriter a snapshot of your family history and helps them based on actuarial data to identify if there are any potential additional risks involved.

6. How much cover and for how long?

This is where professional advice is key. Depending on your life stage amd particlular circumstance there is no single one size fits all solution. Each of these factors do of course have a significant impact on cost. The more cover and the longer the term, the more expensive the cost and vice versa. Do you require Specified Illness Cover or would Income Protection be a better fit for you? Your circumstances are specific to you, therefore the solution needs to be catered to you and what you need.

What to do next?

With a range of companies to choose from, different underwriting requirements, a variety of products to choose from and a wide range of matters specific to your own personal circumstances, it can be daunting as to what is the next step. The answer is simple, seek professional advice from a qualified financial consultant that can research the market and best advise you. This is often free with no obligation attached, providing you with the necessary tools to make informed decisions, and if you opt to take out a policy, they will have researched the market to provide you with the  most suitable solution for your budget and circumstances.

Atlantic Life & Finance can research the market on your behalf and answer any questions you may have.


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Joe Mulligan QFA T/A Atlantic Life & Finance is regulated by The Central Bank Of Ireland
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