Life Insurance Pricing

Life Insurance Pricing:

The pricing in case of life insurance is done on the basis of:

Life Expectancy:  In case of life insurance, the premium amount tends to be different for different customers. This differentiation is on the basis of age, medical history of a person.

1) Age

E.g.: Low premium is charged for children and youngsters as it is assumed that they are at a lesser risk of death as compared to the aged people.

2) Medical History

The medical history should be revealed to the insurance company by the customer in Utmost Good Faith i.e. the insured must provide to the insurer complete, correct and clear information of the subject matter of insurance.

E.g.: If in the medical history it is mentioned that the person has suffered from heart attack in the past or if he is suffering from any terminal disease like cancer or AIDS then, he is at a higher risk of death and hence higher premium is charged. However, if the insured doesn’t reveal that he is suffering from terminal disease or has suffered a heart attack previously and he dies due to the disease or heart attack then, the insurance company does not pay the claim for the same.

Case: The pricing of the policies in LIC (India) is done by the Actuarial Department, which is at the corporate level. The prices of the policies are fixed depending on the following conditions:

• Rate of return on investment in the present market scenario
• Life expectancy of the customer