We get it – not getting insurance is one of the biggest financial mistakes one can make, whether it’s for health, home, auto, or business. But have you ever thought why some plans are higher-priced than others?
Insurance plans are like loans…
Lenders are threatened by borrowers with bad credit history because they’re more unlikely to repay the loan. While lending companies still approve their loan, they give high-risk borrowers higher interest rates and more expensive loan options. Comparatively, insurance companies assess their clients’ age, lifestyle, and medical background and look at the risks they’re likely to face in the long run.
Actuaries assess and manage risks for financial investments and insurance policies. These professionals use math, financial theories, and statistics to forecast how likely their clients are to file a claim. The higher you’re likely to file, the higher your risks are, and the more they can validate charging you higher insurance premiums.
Certain factors comprise your risk profile. Expect to pay more if:
1. You’re sick or are likely to be sick
Age, weight, vices, work environment, and illnesses are factors considered. To determine health coverage risks, here are some of the questions to ponder:
- How old are you?
- How often do you consume tobacco and/or alcohol?
- Do you work in a toxic, injury-prone environment?
- Are you overweight?
- Does your family have a history of certain medical conditions or ailments?
- Have you been diagnosed with a serious illness in the past?
- Or, are you currently battling with an illness which requires medicine maintenance and hospitalization?
Upon completion of the underwriting process, the insurer uses a rating table to match the amount of assumed risk with the premium required for the coverage. So it’s safe to say that physically fit clients with cleaner, healthier lifestyles and working environments tend to be approved of cheaper insurance plans than clients with the tendency of getting ill.
High-risk clients aren’t immediately denied yet they’re offered more coverage, which means higher premiums. While it’s more expensive, buying insurance is still better than getting hospitalized and paying steep medical bills out of pocket.
2. You have a poor credit file
Lending companies aren’t the sole organizations concerned about your credit score. Insurance companies also evaluate your credit history to estimate your level of risk. Insurers, however, look at credit scores for a different reason.
Car insurance brokers, for instance, have determined that people with lower credit scores are more likely to get into accidents than individuals with higher scores. For that matter, they charge more – another valid reason to look closely at your credit score and strive to improve it.
3. You’ve been a reckless driver
While it’s a no-brainer that driving records affect the rates of your car insurance premiums, it’s interesting to know that those driving violations can also affect your life and health insurance.
The more driving violations you have (including speeding, reckless driving, and driving under the influence), the higher you’re prone to auto fatalities, which means insurance companies have a greater chance of paying out. There are instances when serious violations, like driving while intoxicated, won’t even allow you to get approved for any coverage.
4. You live in a high-cost location
If you move to a different location, you may see your insurance premiums boost even when you have a clean driving record and healthy physiological state. Insurance rates, like in the U.S., can increase depending on zip code, cost of medical care in the area, and population health factors.
One way to lower your rates is to accept more financial responsibility and increase your deductibles, the sum of money you pay out of the pocket before the insurance company pays for the rest. By lowering their loss reimbursement cost, insurance companies could charge less for the coverage.
5. You’ve got a long history of claims
Home insurance and auto insurance plans are best examples. If you’re currently insured and you’ve made a lot of claims in the past, insurers assume you’re likely to file more in the future. Your rates may go up based on your history of claims, even if you weren’t at fault for the damages. Statistically speaking, you still pose a higher risk.
You may be thinking, “will rates automatically go up if I make a claim?” Well, it depends on who or what is at fault. For example, the rates for homeowner policies won’t automatically increase after a single claim. However, two claims within three years probably will trigger the increase. Most companies may also not raise rates if the claims are results of severe natural calamities.
Want to get the best insurance premium? Talk to your insurance broker today.