The Most Common Life Insurance Terms and Calculations
If you decide to get life insurance, you will need to understand the most common life insurance terms and calculations. Certain events can lead to the voiding of the contract and insurance policy can be proclaimed null and void if the insured person commits suicide within the certain time period – one or two years after the policy is purchased. This period is actually called a maximum contest-ability period and it refers to the time during which the validity of a specific agreement can be questioned.
Should anything happen to you within this period, the insurer is legally allowed to dispute the claim and ask for additional information. Upon investigation, the insurer can deny the claim and after that the case may proceed to the court. Also, if there is any other reason to believe that you misrepresented the facts on the application, the contract can be nullified.
If there is no reason to question the validity of the contract, the payments starts with the face amount, which is the initial sum to be paid after the policy matures (upon the death of insured person or after the same person reaches a certain age).
How are premiums calculated?
Your premiums issued are calculated with special, mortality tables used by actuaries. These tables present expected mortality rates and they are used to determine life expectancy estimates. Other information used to reach these conclusions are gender, age, life style, habits etc. Added with medical and genetic family history, the cost of insurance the premiums is determined. One important thing to mention is that these calculation schemes are renewed annually and up to date tables have different sections for smoker and non smokers.
The insurance rates increases with a person’s age. Additional things to be taken into consideration is your medical background which will need to be investigated by the insurance company. A lot of insurance companies have different categories for their applicants and these can include preferred, standard and smoker. As the name implies, the first category applies to the healthiest part of population and it means that the insured does not belong to any risk group and that his or her medical history is immaculate. Standard category means that the applicant is under medication at the moment of designing a contract and has a family history of certain illnesses.
Most people fall under a standard category and where you will be placed will also be determined by your profession and travel history and not just physical condition. For instance, you can be denied policy if there are chances of travelling into a country which is there are travel restrictions.
Of course, all the rules and practices can be different depending on the insurance company, and although some general rules remain the same, there are variations and exceptions. That is where a broker can help you navigate the application process and help you get the lowest rate.
Also published on Medium.