4.1.5 Other Premium Factors
There are five other principal factors utilized to determine premium rates as well.
- Sex or gender
- Health condition
- Occupation or avocation
Age is a principal factor because as we get older, our health typically begins to decline and our life longevity is shortened. The younger a person is, the longer the cash accumulation period is and the longer the time period is for paying premiums toward endowment. As age increases, so does mortality risk.
Sex or Gender
A person's gender is a consideration for the very reason that females tend to live longer than males. In fact, women live five or six years longer than men on average. Therefore, men present a higher mortality risk.
A person's physical and mental health is, of course, an important issue. Typically the healthier a person is, the longer they will tend to live, thereby presenting a lesser mortality risk.
Occupation or Avocation
What a person does for a living or what a person does for recreation can also affect mortality. The more dangerous line of work an individual is in, the higher the mortality risk; the more risky the person's hobbies are, the more apt they are to suffer physical harm or premature death. These present morale hazards. There is a term "state of mind" that refers to a person's casual indifference to their body demonstrated through recreational activities. Hobbies such as skydiving, of course, would be a major factor, whereas stamp collecting would not.
Some habits are very bad for us and yet, even though we know this, we still insist upon not trying to give them up. Smoking, drinking alcohol, or overeating are likely to cause shortened longevity as well; these are referred to as moral issues.
These factors are always considered by underwriters and can result in denial of the application. Usually, they are rated as substandard and charged a higher premium thereby contributing to the relief of the insurer's financial risk of loss. There are several ways of rating substandard risks. In the following section, we will look at five approaches to rating substandard risks.