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How Life Insurance Companies Define Life Expectancy

Purchasing life insurance provides individuals with some peace of mind. Should the individual die while the policy is in place, the funds then become available to the beneficiary. This means that your family can continue to maintain the same quality of life. However, how much you pay for this policy depends on how the company will define your life expectancy. As a consumer, you need to understand what this means.

How Do Life Insurance Companies Define Life Expectancy?

It is impossible to know when a person will die in most cases. Insurance companies, though, need to have an understanding of what is likely. This allows the company to make decisions about the cost and availability of these policies. Therefore, most companies use calculators and tools designed to estimate a person's life expectancy. This figure comes from data from other people like you.

What Factors Play a Role?

To determine the most accurate life expectancy of an individual, the company will consider numerous factors. These differ for each insurance company. Most look at a person's weight and BMI, driving record, smoking, drinking, lifestyle choices, and stress factors. This information is factored together to provide an individual's likely life expectancy. Most insurers have complex calculators and tools to help in calculating this number.

Why Does It Matter?

Insurance companies need to minimize risk. To do so, they need avoid having to payout on these policies. If a person is unhealthy, overweight, a smoker, or otherwise at risk health wise, then this adds to the risk of the insurer. As a result, to provide a policy, insurers charge more to people who have these risk factors. Sometimes, a policy may not be available if the risks are too high.

Where Do They Get These Numbers From?

It is not a guess. Most insurance companies track a number of factors like this to make decisions regarding life expectancy. They use data from other people who have a similar lifestyle and who have died to make decisions about how to reduce risk. In other words, these complex algorithms used are ultimately based on what has happened to other people over the last decades. It is not based on any information from your doctor or your personal health.

Will This Limit the Availability of Life Insurance?

Life insurance is not something that companies are required to provide. If you are at a high risk of early death, then many agents will not provide a policy. Term life policies are often offered to those unlikely to die during the term of the policy. Whole life policies may not be available to individuals who have early death risk factors, such as specific health problems or a dangerous lifestyle. If the company does not deny you, then some individuals will pay significantly more for the insurance than others will if they are considered high risk.

It may not seem like it is fair, but understanding life insurance companies is important. If you plan to use your insurance as a component of your retirement planning and estate plan, then be sure to factor in your likely costs. In some cases, you may be surprised by what the insurer defines your life expectancy at. However, remember that this can change down the road, too.

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