What is 'Risk' in Insurance, and How Can I Lower It?

In life insurance, risk refers to the likelihood of something harmful happening to you.

Before providing your proposed coverage, insurers will conduct a risk assessment of your case and evaluate your level of risk. Insurers will then use this level of risk to determine your insurance policy and its corresponding premiums.


How Does Risk Affect My Premiums?


The higher your level of risk, the more expensive your insurance premiums will be.

To find out why, it’s helpful to understand how insurance works.

At its core, life insurance is all about risk management. It’s designed to protect you from the expenses of any harm that may happen to you in the future. When you pay for an insurance plan and make a valid claim for something that your policy covers, then your insurer will pay for the expenses you incurred or provide some other form of benefits.

To make this possible, insurers will charge you with premiums that will cover the expenses of any claims you might make as well as any service fees. Naturally, the more likely you are to make a claim for whatever reason, the higher risk you will be for the insurer. To compensate for this higher level of risk, your insurer will impose higher premiums to cover any expenses that they might need to pay for if you make a valid claim in the future.


What Factors Affect My Level of Risk?


Insurers will consider a variety of factors to evaluate your level of risk and its corresponding premiums. Some of these factors include:

Age – In most types of insurance, the older you are, the higher your assessed level of risk is. This is mostly due to your likelihood of getting sick or injured as you get older. Older people also tend to make more claims than younger people, so they’re often riskier for insurers.


Gender – Men tend to be assessed as a higher risk than women because women statistically have higher life expectancies.


Marital Status – Your marital status can either increase or decrease your level of risk, depending on what type of insurance plan you get. Being married with a family, for example, may mean that there are more people to cover in your insurance plan and more expenses to compensate for in claims.


Occupation – If you work in a job that’s classified as high-risk, then your level of risk will also be higher.  Examples of high risk occupations include: Miners, Tradesmen (Tradies) such plumbers, electricians and builders, pilots, police officers, truck drivers, offshore oil/gas workers, farmers etc.


Medical History – Insurers will evaluate your medical history and assess your level of health, including any current or pre-existing medical conditions you might have. They’ll also assess your family’s medical history to evaluate your likelihood of developing any genetic diseases or conditions.


Lifestyle – Any activities or hobbies that increase your risk of dying will also increase your level of risk. This includes any dangerous hobbies you might participate in or other unhealthy habits (e.g. smoking and excessive alcohol consumption).


It’s important to remember that every insurer will have their own procedures and guidelines for risk assessment. Many of these factors also depend on what type of life insurance you’re getting and the plans or packages you’re considering.


How Can I Lower My Risk?


Lowering your level of risk is all about minimising your likelihood of making a claim. Some of the most proven ways to do this include:

Quit smoking. To insurers, smokers are categorically riskier than those who are non-smokers. Smoking effectively increases your risk of dying, so stopping this habit (if you have it) will help decrease your risk.


Maintain a healthy body weight. Several serious medical conditions (e.g. diabetes, high blood pressure, coronary heart disease) are linked to being obese or overweight. By maintaining a healthy body weight for your age and body type, you can help reduce the risk of developing many serious medical conditions.


Avoid excessive alcohol consumption. Excessive alcohol consumption can increase your risk of developing liver damage or cardiovascular issues like heart attacks or strokes.


Treat medical illnesses or injuries immediately. The sooner you treat injuries and illnesses, the less likely they will be to develop into serious, long-term conditions that could threaten your health.


Get regular medical check-ups. The more regularly you get medical check-ups, the sooner you’ll be able to spot and diagnose any medical conditions you might have. This will also help you treat medical issues before they become worse.


Drive safely. Some insurers consider your driving behaviour – especially that on official record – to evaluate your lifestyle. Driving safely also helps reduce your chances of getting into road accidents.


Consider getting insurance earlier. With all other factors being equal, the younger you are at the time of applying for insurance, the less risk you will pose to insurers.


I Need More Help. Where Can I Get It?


If you have any other questions about risk in insurance, please contact us to get the help you need. We offer comprehensive life insurance comparison and guidance for life insurance products in Australia, and we can even help you compare life insurance from different insurers to make coming to a decision easier. 

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