CLHIA-ACCAP - Consumer Information

A guide to life insurance

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9 LIFE INSURANCE POLICIES Setting premium rates for life insurance is unlike the pricing of other products where the cost of materials and production is known. It is even unlike car or household insurance, as life policies may stay in force for 50 years or more. Insurance companies have no way of knowing exactly what their future costs, investment earnings or claims experience will be. Accordingly, they make long term projections based on statistical or actuarial experience, using mortality tables that show death rates at various ages of the population over time and making assumptions about future expenses, interest rates and mortality rates. These calculations are made by actuaries who are professionally trained in the mathematics of insurance. Pricing and costs Before your application is approved, the insurance company has to assess the degree of risk involved. Obviously, the older you are, or the poorer your health, the higher the risk you represent. Fair value is achieved by pooling similar risks together. Data and statistics are gathered and used to "classify" people by risk groupings. Insurance prices - the premiums - reflect the value of the risk assessed. The lower the risk of the group, the lower the premium. In evaluating risk, an insurance company looks at many factors, such as age, sex, medical history, physical condition, and so on. For example, women ordinarily pay lower premiums than men. This is based on overwhelming statistical evidence that women live longer. Lower premiums also apply to non-smokers. (See page 23.) Fair Value FACT: What about group life insurance? If you are employed, you probably have this form of life insurance through your employer or union. Usually, it's term insurance (and available to age 65) issued to a group of people under a master contract. You receive a certificate as evidence of your coverage. For large groups, it is often issued thout a medical or other evidence of insurability. Your group insurance is a vital element in your total insurance coverage. But the coverage usually terminates if you cease to be a member of the group. Check to see if the plan allows you to convert to an individual life policy if you leave the group or if the coverageterminates for other reasons.

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