People assume premium-setting is arbitrary, or worse, that the price reflects how much the company thinks it can get. It is neither. A premium is a calculation with a small number of inputs, and once you know what they are you can see why your quotation looks the way it does — and, in several cases, do something about it.
What the premium is actually made of
Four components, in descending order of size for most policies:
- The risk cost — the expected cost of claims for someone with your characteristics, drawn from mortality and morbidity tables.
- Expenses — underwriting, issue, administration and commission. Heavily front-loaded into the first year or two, which is why surrendering early returns so little.
- A margin for adverse experience — the buffer that lets the insurer pay claims in a bad year.
- Profit, and on investment-linked products, an allowance for investment management.
The first is where all the variation between individuals comes from.
The factors that move the price
Age — the largest single factor
Mortality risk rises with age, and it rises faster than most people expect. The practical consequence is simple and worth stating plainly: the cheapest policy you will ever be offered is the one available today. Deferring a decision by five years does not keep the price constant; it increases it, and it increases the chance that something in your health has changed in the meantime.
Smoking status
Usually the single largest controllable factor, and the difference between smoker and non-smoker rates is substantial — commonly a multiple, not a percentage. Most insurers require a period of complete abstinence (frequently twelve months) before non-smoker rates apply, and this typically includes all nicotine and tobacco products. If you have stopped, tell your insurer and ask to be re-rated. People routinely continue paying smoker rates for years after quitting simply because nobody asked.
Health and build
Blood pressure, cholesterol, blood sugar, height and weight, and any current or past conditions. Some of these move within months of a change in habits, and a borderline reading is worth addressing before you apply rather than after a rating is applied.
Family history
Cardiovascular disease, certain cancers, or hereditary conditions in parents or siblings before a specified age. You cannot change this, but it is worth knowing that it is asked about and that concealing it is the fastest route to a declined claim.
Occupation and pastimes
Higher-risk occupations attract loadings, as do certain activities — diving, motorsport, aviation, mountaineering. For critical illness and disability cover, occupation matters even more than it does for life cover, because the definition of incapacity often relates to your own occupation.
Sum assured and term
Larger sums assured trigger fuller medical evidence. Longer terms cost more per year because they extend into ages where risk is higher, though the annual premium is usually level throughout — you are paying a smoothed average.
Product type
Term assurance is cheapest per dollar of cover because most policies never pay. Permanent cover costs more because a claim is certain, only the timing is uncertain. This is arithmetic, not margin.
Have a quotation, illustration or policy in front of you? Send it over and I will read it with you line by line before you commit — no charge, and no obligation to buy anything.
Get it reviewedWhat happens when you apply
Applications sort into four outcomes:
- Standard rates — the quoted premium.
- Rated (loaded) — an additional percentage or a flat extra per thousand of cover, reflecting a specific elevated risk. Frequently temporary; a loading applied after a recent health event can often be reviewed after a period of stability.
- Exclusion — cover issued at standard rates but with a specific condition or activity excluded. Sometimes preferable to a loading, sometimes not, depending on what is excluded.
- Postponed or declined — usually where something is under investigation, and often revisitable once a diagnosis or an all-clear exists.
Two things to know about a rating. First, ask for the reason — insurers will generally explain, and the explanation sometimes reveals a misunderstanding you can correct with a letter from your doctor. Second, a rating from one insurer does not bind another, but nor should you shop around by concealing what the first one found. Disclose it and let the second underwriter assess it properly.
Practical steps that reduce what you pay
- Apply now rather than later. Age is the dominant factor and it only moves one way.
- Stop smoking, then wait out the qualifying period and apply. Nothing else you can do has a comparable effect.
- Address a borderline reading first. Blood pressure and blood sugar can move meaningfully in a few months.
- Do not over-insure. Do the needs analysis. Paying for cover nobody needs is the most avoidable cost of all.
- Match the term to the need. A thirty-year term where twenty would do is thirty years of premium for twenty years of value.
- Consider a laddered structure — several policies with different terms, so cover reduces as the need does, rather than paying for a flat sum assured you no longer require.
- Ask about a rating review after any material improvement in health.
- Pay annually if you can. Monthly payment frequently carries a small loading.
What not to do
Do not shade the truth on the application to get a better rate. Underwriting is the insurer's opportunity to price your risk and accept it; once accepted with full disclosure, that risk is theirs. Non-disclosure hands them a reason to avoid the policy at claim stage — which means your family discovers the problem at the worst possible moment, having paid premiums for years for nothing. Every dollar saved this way is borrowed from the person who will have to claim.
The comparison to insist on
When you receive a quotation, ask for it on the same sum assured across the products you are considering, and ask what the premium would be at your age plus five. Seeing those two figures side by side is usually what settles the question of whether to act now, and it is a request any adviser should be able to meet in a few minutes.
How this plays out at Guardian
Two Guardian products show the underwriting trade-off clearly.
Guardian Xpress Life is designed around avoiding lengthy medical requirements — you apply online, from ages 18 to 69, choosing a coverage amount from TT$100,000 to TT$500,000. The trade-off for that simplicity is the graded death benefit in the early years: a return of premiums if death occurs in year one, 50% of the coverage amount in year two, and the full amount from year three. That graded structure is the underwriting, moved from the application form into the policy terms.
Guardian Term Life is fully underwritten, which means more questions and potentially medical evidence — and, for a healthy applicant, a considerably larger sum assured for the same premium.
Which is right depends on your health, the amount you need and how quickly you need it in force. That is a conversation worth having before you apply, not after a rating comes back.
Noble Accounting & Insurance is an appointed adviser for Guardian Group (Guardian Life of The Caribbean Limited and Guardian General Insurance Limited). Where an article recommends an insurance or annuity solution, that recommendation will be a Guardian Group product, and we are remunerated by Guardian Group when business is placed. Product features described here are drawn from Guardian Group's published material; full terms, benefits, exclusions and premiums are set out in the policy documents and your personal illustration.
General information only. This article sets out general information about accounting, taxation and insurance matters in Trinidad and Tobago as understood at the date of publication. Rates, thresholds, product features, forms and filing procedures change, and the right course depends on your particular circumstances. It is not accounting, tax, legal or financial advice and should not be relied on as a substitute for professional consultation. Please confirm current requirements with the Inland Revenue Division, the National Insurance Board, the Central Bank of Trinidad and Tobago or your insurer as applicable — or speak with us before acting.