- type and amount of risk
- size of deductible
- amount of coverage
- age of the applicant
- applicant’s medical history
- applicant’s past and current lifestyle
Insurance policies can be issued at the group or individual level. When group insurance is issued, minimal underwriting is required and the group as a whole is afforded insurance coverage based on a relatively average premium rate determined by the class of people being covered. When individual policies are issued, the insurance company evaluates the individual to determine coverage risk. The process of evaluation, or underwriting, can include the evaluation of many of the factors mentioned above. Upon completion of the underwriting process, the insurer uses a rating table to match the amount of assumed risk with the premium required to implement coverage.
Automobile, homeowner and health insurance policies can be issued at higher deductible levels in order to keep premiums affordable for the insured. Lower deductibles have the reverse effect and cause premium amounts to run higher. Some factors that can affect the size of premium payments for life, health, disability or long-term care insurance include age, smoker or non-smoker status, gender and medical history. Obtaining insurance for these types of policies at a young age will generally lock in lower premiums. Waiting until later in life to take out such policies can almost guarantee higher premiums. Premiums can also be made more affordable by reducing the coverage amount.
For more on this topic, read Insight into Insurance Scoring and Insurance 101.
This question was answered by Steven Merkel.