Insurance World

Insurance is all about the evaluation of risk and it is something that life insurance companies know a lot about. Every time life insurance companies receive an application for a life insurance policy, the companies decide how much of a risk that applicant poses to their business. This is to say that the insurance companies make an educated estimation of how long the applicant is likely to live versus how many insurance premium payments they are likely to make before death occurs.

If they believe that the applicant will live long and will therefore make a substantial number of insurance premium payments during his/her life, then life insurance companies see the applicant as low risk to their business. However, if life insurance companies believe that an applicant could die soon, and therefore make relatively few insurance premium payments while they are alive, that candidate will be seen as a higher risk by the insurance companies.

How life insurance premiums are calculated

When calculating life insurance premiums two factors are considered by life insurance companies. The first factor involves an evaluation of the general likelihood of death occurring at a particular age, and involves the scaling of applicants against normal life expectancy. This sets the ‘average’ risk level that different age ranges attract; needless to say that the closer you are to your average life expectancy then the higher the risk level that you’ll be measured against.

The second factor is based on whether the applicant is above or below their average risk level for their age. Someone who has an unhealthy lifestyle, suffers from pre-existing health conditions and is in a stressful job is likely to be classified as ‘above average’. On the flip side, someone who goes to the gym regularly, does not smoke and eats a balanced diet is likely to be seen as ‘below average’. Naturally, those who are below average risk will see keener insurance premiums on their life insurance policy for their age than people who are classified as ‘above average’.

Cheaper life insurance?

While there is often little we can do about pre-existing health conditions, there are ways in which to tip the scales in our favour of cheaper life insurance. This we can do by altering our lifestyle and striking a better work-life balance in a stress-free environment. Changing lifestyle habits though can be more effective for some than it can for others.

For instance, a person in their 20s living out an unhealthy existence is likely to be seen as less of an insurance threat for their age to life companies than someone in their 50s with the same unhealthy lifestyle. This is because the body of a 20-year-old will respond more efficiently to improvements in lifestyle than will the body of a 50-year-old. In essence therefore, there are different degrees of being above average and below average, making the calculation of life insurance premiums for each individual definitely a job for the experts at the life companies!

If you have bad credit you can be denied car insurance! The protections afforded to the consumer since the Depression of 1929 no longer exist. The Financial Laws passed through Congress in 1992 allowed banks, insurance companies, investment firms to handle banking, insurance and investment operations. Laws passed after 1929 had prevented banks from insurance and direct stock exchange trading, likewise insurance companies could not pursue banking operations or stock exchange nor could stock exchange companies pursue insurance or banking operations.

This freedom was granted without the subsequent protections of the consumer included in these new laws. There currently exists no single body of consumer law covering the privacy of consumers. The private citizen must fight the triumvirate of bank,insurance and stock exchange through the court system for his own right to privacy.

Some states have allowed the use of individual credit to be a determining factor in the issuance of car insurance. However, two such states, Texas and Michigan have institutionalized state agencies to meticulously govern and manage those insurance bodies. These states have a socialized automobile security plan where individuals having bad credit or low income jobs can obtain economical coverage or liability car insurance.

True, each has rather strict guidelines by which a motorist can qualify for low cost insurance. However, this is a two edged sword! The performance characteristics of every insurance agency and company are meticulously maintained. These involve the speed with which legitimate claims are processed by the insurance company, customer satisfaction (both client and claimant), conformity to state and federal laws. A performance index is issued for each firm and their respective insurance costs are compared with both a state and federal cost per coverage. The state has created its own actuarial data base to evaluate insurance coverage. The motorist can freely view these to determine the best coverage for his situation. The consumer is given power that the insurance vendor can appreciate and respect.

This fact may give some satisfaction to the average motorist but some of us still want to know how good or bad credit make a motorist a good risk or a bad one. Perhaps it is an honesty issue! If I have good credit then I will always obey the rules of the road and none of life’s bad things will touch me. Does good credit mean that you can avoid being hit by a drunken driver, avoid having your car pushed off the highway into the nearby lake or have hail storms miss you? I can understand where the honesty of making constant insurance payments would be reflected in your credit but how does it establish insurance rates?

Reviewing the Report to the 79th State of Texas Legislature, 2004 I discovered that insurance was not denied because of a bad credit score but that it could be a higher premium because of poor credit. Statistics showed that people in the 30 year age group has the worst credit and the greatest vehicle damages reported. My conclusion would not be that bad credit makes you careless. Rather my summation is that youth and proneness to erratic behavior was the cause. The point here is that there is no direct causal relationship but at the strongest an inferential connection.