How Premiums are set in a Modified Life Insurance Policy?

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  • Post last modified:February 1, 2020

Have you taken any life insurance policy coverage? What type of policy coverage do you have? Have you heard of the modified life insurance policy?

A modified life insurance policy is just like any other life insurance policy. The difference with the traditional insurance policy is that in a modified insurance policy, the premiums paid by the insured tend to be lower during the first few years. The premiums will then increase, after, say, 10 years.

Many factors come into play when determining what should be charged as a premium. This article shares some ways on how premiums are set in a modified life insurance policy.

Factors that are Used to Set the Premium

Age is Important

When it comes to deciding the amount of premium to be paid in a life insurance policy, age plays an important role. This includes premiums for a modified life insurance policy. The general rule is that older people will have to pay higher premiums than those paid by younger people taking up the same policy.

The logic behind this is the fact that younger people tend to live more and, therefore, will have more time to pay their premiums before they make a claim. The premiums charged for this youthful group, therefore, will be much less than that charged to older people taking up the same insurance policy.

There is enough evidence pointing to the fact that the chances of death increases as one advances in age. This is the main reason why age will have to be considered in determining the premiums to be paid.

Most insurance companies will not offer modified life insurance beyond a certain age. If the age limit set by the company is 80, then you cannot get insurance coverage if you are over 80 years of age.


Gender is the second most important factor used to determine the risk factor involved in insurance, after age. Though it mostly applies to other insurance policies like motor vehicle insurance, it also plays a critical role in formulating the price structure of modified life insurance policies.

Naturally, men and women will tend to have different mortality and morbidity rates. The fact is that men have a lower lifespan compared to women. This was proven way back in 1750 when Sweden conducted the first national census.

To date, gender has been used by many insurance companies in the US to determine the risk factor in insurance and by extension, the premium rate to be paid by the insured.

The use of gender in setting premiums in modified life insurance has been termed unacceptable by some people. In fact, a European Union directive in 2004 banned the use of gender to determine premium charges.

However, the ban was later on lifted due to enough evidence as well as actuarial facts pointing to the fact that men have higher mortality rates than women.

The effect of gender on modified life insurance is that men will be charged a higher premium than women due to their high mortality rate.

Health Rating and Occupational Influence

The health rating of an individual will have to be established before premium charges are determined. Ideally, all insurance companies require the insured to provide all information regarding their health.

The insurer will go ahead to verify the information either by getting in touch with medical facilities or sending the insured for some medical tests. This is an important step as the information will be used to assess the risk involved in the insurance contract, thereby, forming the basis from which to set the premium to be charged.

In modified life insurance, the insured’s occupation will also influence the premium to be charged. Death could occur at the workplace either through an accident or some other illness brought about by your working environment.

For example, construction workers and those working for mining companies are more prone to accidents. This is due to the environment in which they work, as well as the equipment they use.

Likewise, a person working in a manufacturing plant is more exposed to pollutants that could have an adverse effect on their health. The occupations of such persons are deemed to be dangerous. This will mean they will be charged more when taking up a modified insurance policy.

Insurance Regulation

In the United States, States are mandated to provide legislation that regulates the insurance industry. The pieces of legislation will also cover the premium rates used on modified life insurance policies. Insurance regulation, therefore, is used to determine the premium to be charged to life insurance policyholders.

The regulation pertaining to players in the insurance sector is to the effect of protecting the insured while still considering the insurer’s interest. This means that in as far as regulation will try to prevent the charging of exorbitant premiums, they will also factor in the insurer’s profit motive.

Insurance companies will be required to set a premium rate that is friendly to the consumer while still enable them to make some profit.

The regulation with regards to premium charges is normally revised from time to time. For example, if the insurance company is found to operate at a loss due to low premium rates imposed by regulation, the laws might be amended to allow them to charge more. The opposite is true if insurance companies are found to make a lot of profit.

Mode of Payment

The mode you use in paying your premiums will also determine how much you’ll have to pay. The payment structure may allow you to pay your premiums either monthly or yearly. Opting for yearly payment will usually lead to fewer premium charges.


There is no better way of securing the future than to take life insurance policy coverage. Having discussed how premiums are set in a modified life insurance policy, you now understand what is involved in determining the premium you’ll have to pay each month.

This type of policy is most suitable if you are low on cash at the moment but have plans to secure more funds in the near future. It is also a good way of investing your money.

Linda Chavez

I'm a burial & senior life insurance expert, independent agent, Founder & CEO of Seniors Life Insurance Finder. I have been working in this sector since 2004 and established my own company in 2014. I have a team of seven members, and we are trying hard to share the knowledge we've gathered. We know how difficult often it is to find an affordable policy. Hence, we are doing our best to help you.