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Did You Know You Can Decide Term Plan Premiums Based on Your Life Expectancy?

Jun 29, 2018 | 2 years ago | Read Time: 3 minutes | By iKnowledge Team

What is ‘Life Expectancy’?

Life expectancy is more than just a number. It is the average period or age that you are expected to live. This statistic issued by a national statistical agency is used in the financial world to make sound business decisions. For example, life expectancy is the single most factor used by insurance companies to determine insurance premiums. Using the data and tables provided by the Internal Revenue Service, these companies try to minimalize their liability risk. This statistic reading is the primary factor in determining your risk factor and the possibility of making a claim. To determine effective and reasonable premium rates, insurance companies consider the age, lifestyle choices, family medical history and several relative factors from your life.

There are various factors which determine your life expectancy; the two prominent ones being when you were born and your gender. Additional factors which influence your life span are-

  • Your race
  • Any personal medical conditions
  • Your family medical history
  • Lifestyle
  • Socieconomic status
  • Income
  • Economic Well-being
  • Employment

Life Expectancy and Term Insurance Premium

Life expectancy and term insurance are directly related. How? Your premium is decided based on your life expectancy. Consider this, the younger you are when you purchase a term insurance the longer you are likely to live. Also, you have the benefit of paying a lower amount of premium.  Similarly, the longer you wait to buy a term policy plan, the lower is your life span and higher the amount of premium that you will be required to pay.  

Life Expectancy in Annuity

When you decide to arrange annuity payments with your insurance company, life span plays a major factor. Why? Because in an annuity contract, the insurance company agrees to pay a certain amount for a fixed period or until the death of the policyholder. For this, it is crucial to your life expectancy take into consideration as this decides the payout for the period you are going to live.  Here are examples of how life expectancy can affect your annuity contract.

  • If you choose a single life annuity option, your life span is taken into consideration and payments are made to you accordingly. These payments cease after your death.
  • Conversely, if you go for a joint life annuity with a defined period of payout, you are basically estimating how long you will live for. Incase of your death during the period of the contract, then the beneficiary you have chosen would continue receiving funds for the remaining time period of the contract.
  • In case of joint life option with survivor benefits, the annuity plan works in a way where the payments will continue to you after your beneficiary’s death or vice versa. In case of an unforeseen contingency which results in your death, the amount paid to your beneficiary is reduced. That said, if your beneficiary dies first, you will receive full payments. This type of annuity contract is beneficial for you and your beneficiary for which the premium amount is decided based on the life expectancy of both you and your beneficiary.

Life Expectancy and Retirement Planning

Life expectancy plays a primary factor in the process of planning a retirement. Often, couples use a joint life expectancy where they consider the life expectancy of their partner as well, who become the beneficiary of a retirement fund or annuity plan. If you are an aging working individual you can arrange your retirement plans’ asset allocations based on the estimate of how long you are expected to live. Also, traditional retirement plans determine the implementation of required minimum distributions (RMD) based on the life span of an individual.

Knowing your life expectancy helps you understand your needs and the premium cost by insurance companies. With this you can easily make informed decisions especially about your annuity payment options. More so, don’t forget to get insured with iTerm Plus from Aegon Life where you get a comprehensive online term plan tailor-made for your requirements. After all, it is always good to be well prepared for the future and safeguard your loved ones from any unforeseen contingencies.

Advt. no.: IA/Jun 2018/4148


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