Life Insurance Quotes

How Do Insurance Companies Calculate Life Insurance Quotes?

(Our actuaries dish the secret formula)

Christine Lacagnina | July 17, 2018
Family on the beach

So, you’re ready to face your fear of the inevitable and get yourself some legit life insurance coverage. We're proud of you, and we're sure your loved ones are, too. But finding life insurance quotes can be tricky—the whole process can be lengthy, confusing and downright exhausting. 

That's why independent insurance agents are here—to take the pain, difficulty and nausea out of the process. They'll shop and compare policies from multiple carriers, and ultimately piece together the best coverage for you, at the best price. They'll even break it down in a way that actually begins to make sense.

But before we get too far ahead of ourselves, we want to give you a little Life Insurance Quotes 101 to help make more sense of this whole process.

How Life Insurance Quotes Are Born

Before you dive into getting coverage, you should know how insurance companies come up with quotes. 

  • They start by evaluating a series of risk factors that have number values (costs) associated with them, in a rating manual.
  • Risk factors may be things like age, gender, and location—things that could increase the chances of you filing a claim.
  • The cost of the risk factors is determined  through studies of historical trends, or via analytical models (basically, super-sciency/mathy stuff).
  • They'll check off those attributes that apply to you.
  • A quote comes from the sum total of everything checked off on the list—plus a bit extra factored in for the insurance company's profit margin. However, due to competition from other companies, they might lower the price a bit.

NOTE: Quotes are subject to change—the insurance company may gradually increase your premium over time to keep up with the financial demands of offering the coverage.

Step 1: Understanding Life Insurance and Why You Need It 

Now that you understand how life insurance quotes are born, it's important for you to understand what life insurance is, and why you'd need/want it:

  • The what: Life insurance is a contract between you and an insurance company. The contract states that in exchange for the premiums you pay them, they’ll hand over one of those gigantic checks for a set amount of money to the person of your choice (beneficiary) once you die (in the distant future...fingers crossed).
  • The why: Having proper life insurance coverage is a great way to protect your loved ones from suffering not only from the loss of you, but also from a heaping mound of debt once you're gone. Sounds fair, doesn’t it?

Now that you understand how life insurance quotes are born, it's important for you to understand what life insurance is, and why you'd need/want it:

  • The what: Life insurance is a contract between you and an insurance company. The contract states that in exchange for the premiums you pay them, they’ll hand over one of those gigantic checks for a set amount of money to the person of your choice (beneficiary) once you die (in the distant future...fingers crossed).
  • The why: Having proper life insurance coverage is a great way to protect your loved ones from suffering not only from the loss of you, but also from a heaping mound of debt once you're gone. Sounds fair, doesn’t it?

Step 2: Gather All Your Info

Life insurance quotes are only as good as the info you provide. So make sure you supply the following details with SAT-ready accuracy:

  • Your demographic info (i.e., age, weight, height, sex, smoking status and any current/past health issues)
  • Your desired death benefit (the amount that'll be paid to your beneficiary when the time comes)
  • Any lifestyle choices that could up your risk of death (i.e., a physically demanding job, poor exercise habits, or love of sword-swallowing)
  • Your life insurance goals regarding savings, etc.

Step 3: Connect with an Independent Agent

Comparing quotes by yourself can be a bit tricky at times, with a lot of important bits and bobs to keep in mind, new words to learn, companies to evaluate, and more.

This is where your agent earns their keep. They’ve been down this road a gajillion times before and know everything worth considering when comparing quotes.

Yep, an independent agent can make your life quite a bit easier. And since they're not involved in a steady relationship with just one insurance company, they can stray a bit, shop around and find the right match for you.

Step 4: Work with Your Agent to Go Over the Following

In any relationship, open communication is key. Same goes for your relationship with your agent. The more you tell them about your situation, the better they’ll be able to pair you with the right policy and benefits to leave behind.

Here are a few talking points that are definitely worth going over with your agent:

  • The differences between term policies and permanent policies, and which will fit your needs best
  • A full analysis of your family's living expenses, including any outstanding debts
  • Your expected end-of-life expenses (is your funeral going to be a total blockbuster, or simple and sweet and cheap?)
  • The value of your investments and savings
  • Pick the right amount of coverage for you (it's not for anyone else, after all)

Step 5: Tell Them Everything

This is the part of the getting-to-know-you process where you'll tell them everything. And we mean everything. Tell them the whole nitty-gritty, including  details you might prefer to gloss over, because inevitably they—or the carrier—will eventually find out and that won’t be good for anybody.

Keep these pointers in mind:

  • If they do ask, you tell. Honesty will do nothing but help you. It will make sure you are properly covered,at the right amount for you. So be an Honest Abe and tell them everything.
  • If they don’t ask, you tell. Don't ignore anything you think is relevant just because it “didn't come up.” The more in-depth your Q&A/confessional segment is with your agent, the better your life insurance quote will be for you, and your family.

The Lowdown on Online Quotes

We know what you want—quick n’ easy life insurance quotes in under a minute. We get it, you dig immediate gratification. However, choosing supersonic speed could mean sacrificing accuracy...which could end up costing you.

Look, we all love quick quotes—but online companies might leave out options that'll save you some serious green, all the while conveniently leaving in factors that assume higher risk and leave you with a pricier policy.

Not only that, our competitors might sell your precious info to multiple companies, which could lead to a bunch of unrecognized numbers popping up on your caller ID, and a flooded voicemail box. We flipped the script by giving YOU the info and options to connect with an independent insurance agent when YOU are ready.

TrustedChoice.com Article | Reviewed by Dorothy Andrews

Now, who's ready to get their insurance problems solved?