Why do life insurance premiums go up with age?
[social_share]If a person has an annual or short term life insurance policy then they may notice that the premiums increase even though there is no correlating increase in the pay out.
This is not the result of inflation adding to costs, as it might with a holiday or a hotel. If the general price level was going down, or there was deflation, then the life insurance premiums would still be increasing as the rise in premiums is driven by something much more fundamental.
Life expectancy is the key factor with life insurance premiums. Life expectancy in almost every case goes down with age, the only exceptions being if a person stops being engaged in a hazardous occupation or if a person has recovered from a very serious illness. Generally, however, life expectancy decreases as a person gets older because they become more susceptible to disease as well as to the effects of age. It is also the case that with a worse, even if only marginally worse, constitution and reflexes they can also find that they are more prone to becoming victims of accidents.
As life insurance is essentially based on the risk that a person will die over the term of the life insurance, then the risk increases with every renewal. This will mean that for the same term and pay out as the previous policy, the premiums will increase. It can also mean that as a person takes on more responsibilities, for example, marriage, having children and looking after elderly parents, they can also find that the required pay outs also increase.
Long term life insurance does not tend to increase in the size of the premium over the life of the insurance term. This is because insurers are aware that people can often cancel their life insurance half way through the term if they see the price increasing. This can mean that when a person is looking at different life insurance policies, they may see that the life insurance policy with the shorter term will have a lower premium. This does not mean that the life insurance with the shorter term will be cheaper overall, although this may sound a contradiction in terms. The fact is that the life insurance at a later stage will be lower for the longer term life insurance than if short term life insurance was taken out, while at the same time the life insurance will be cheaper over the term.
