Cost of Insurance

Last Updated: September 17, 2020

Definition - What does Cost of Insurance mean?

Cost of insurance is a fee associated with certain types of life insurance, such as variable and universal life insurance. Different from premiums, these charges are billed to pay for administration, mortality and other responsibilities of the insurer. The amount is largely determined by the risk class and age of the policyholder.

Age is a large factor for insurance companies as older people tend to be at higher risk of illness and a shorter life expectancy. In fact, age is so important that many life insurance companies underwrite based on age alone.

Younger applicants may only need to answer a short health questionnaire online while older applicants need to submit a doctor’s letter or submit to a medical exam prior to securing insurance.

The medical questionnaire will ask for common risk factors such as pre-existing illnesses, history or dangerous medical conditions like heart attack or stroke, and family history for illnesses like cancer, heart disease, or diabetes.

Insuranceopedia explains Cost of Insurance

Cost of insurance charges tend to increase as a life insurance policyholder gets older. This is largely because as the policyholder ages, the more likely they are to die and thereby require the insurer to pay out a death benefit.

Age is such an important factor that many policies are priced purely on age. All things being equal, an older person will always pay more for insurance due to their shorter life expectancy. Older individuals trying to get life insurance for the first time may also be required to sit a medical exam or provide a doctor’s note.

Another factor that can impact your cost of insurance is your health. If your medical records show that you are in poor health (ie. had a stroke, suffer from heart disease or diabetes) or are at higher risk of poor health your costs will be higher. Common risk factors here include body weight, medical history, family history, and smoking habits.

Your occupation and hobbies also play a big role in determining your cost of insurance. People in dangerous occupations like roofing, manual labour, stuntmen, miners, etc. are more likely to die than people working low-risk jobs sitting at a desk. Similarly, policyholders who have a fondness for dangerous activities like skydiving should expect a higher cost of insurance.

Another small but important factor is gender. Women generally have longer life expectancies than men and therefore represent a lower risk to insurers. As a result, they typically can expect to pay 10-25% less for health insurance.

Cost of insurance fees are typically charged on a monthly basis.

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