What makes up the cost of my life insurance premium?

What is a premium?

The premium is the monthly amount you pay to the insurance company for your term life insurance coverage. It’s like Netflix. You pay monthly and get to enjoy movies. Your term life insurance premium you pay monthly and you get to enjoy peace of mind.

It’s a bi lateral contract (two sided). The insurance company gets your cash, and your loved ones get the payout when you die.

How is a Premium Calculated?

Your premium is determined by an actuary.  An actuary is a person who loves pocket protectors and uses statistical analysis to calculate the probability of you dying.

What Makes Up My Premium?

Your premium is made up of 3 main factors.

1.)  there is an amount required to cover the expected insurance payouts across all of the insurer’s customers.

2.) there is an amount to cover administrative and marketing expenses.

3.) there’s a small amount of profit margin for the insurance company.

Let’s Go a little deeper into all three.

1.) Underwriting Expenses

It’s pretty simple. The higher the chance of the death, the higher the premium.  Some of the more important factors include:

  • age – the older you are, the closer you are to being dead
  • gender – females live longer than males
  • smokers – tend to die faster than non-smokers
  • lifestyle – skydivers, base jumpers, hang gliders die sooner than people that don’t do these sports

2.) Administrative and Marketing Expenses

Like other businesses, insurance companies have to employ staff, pay rent, keep the lights on and the toilets flushing, etc.  Additionally, traditional insurance companies tend to have large marketing expenses driven by large scale branding efforts, as well as hefty commissions paid to agents or brokers who sell their products.

dropdead term life insurance is way ahead of the competition here. dropdead sells directly to consumers and doesn’t pay commissions to brokers. So too, because dropdead was built technology-first, we don’t have expensive legacy systems or processes.  This results in cost savings which we pass on to our customers. We are the cheapest in the market place. We put you first and profit a very distant second.

3.) Profit

At the end of the day, insurance companies need to make a profit in order to continue to do business.  The profit to the insurance company is the difference between the premium collected and the underwriting and administrative/marketing expenses.

Am I Being Quoted the Best Premium?

Your premium is intended to reflect your specific likelihood of death.  Generally speaking, if you’re healthy and not engaged in a risky lifestyle, you’ll likely get an insurer’s best rates for your age and gender.  It’s worth noting here that with term life insurance, once your premium is set, it does not change for the duration of the policy, even if you become ill later.

A couple tips to ensure you get the lowest premiums possible…first, look for an insurance company that doesn’t have major administrative and marketing expenses.  Typically, these are insurers that offer policies online and without a broker, like dropdead term life insurance.  Second, get life insurance early in order to avoid the additional charges that will come with surprising life events and the process of getting older. It’s never too soon to protect yourself.

Don’t wait till it’s too late. dropdead term life insurance is the best and cheapest life insurance solution you could wish for.