Why is life insurance cheaper for women than for men?
By Deepak Yohannan
Buying life insurance is an exhaustive process. Not only do we have to carry out a comprehensive needs analysis but we also have to find deals that meet our financial requirements, both present and future. As with everything else, we must shop for best deals. However, doing so within insurance sector may throw up some surprises.
Most people are aware that insurance costs differ from person to person. It is well known that smokers pay considerably higher premiums than non-smokers. Similar discrimination exists between an old and a young, a sick and a healthy, and even between a man and a woman.
Yes, women bear lower insurance cost than men do. Ever wondered why?
Mortality rate matter
The primary reason for this cost difference between the two genders is that according to statistics, women generally live longer than men do. Women are expected to outlive men by an average of 5 years. How does this affect insurance companies?
Well, because an average woman will outlive an average man, she will be paying life insurance premiums over a longer period. Assuming that lifespan of a female policyholder exceeds that of a male policyholder by the estimated 5 years, the insurer will receive 5 additional annual premiums from the former. This allows the insurer's costs to be spread over a longer period, thereby resulting in cheaper premiums for women.
Remember, the insurer must guarantee death benefit regardless of gender. The insurer faces a higher financial risk if the policyholder dies early, thereby paying fewer premiums. Women are rewarded with lower premiums because they present less of a risk.
Lower coverage needs
Another determining factor is that women usually seek lower coverage. Even today, most families have men as the principal earners. Hence, men tend to opt for bigger policies to protect their dependents. A larger life cover means greater risk for an insurer. If the policyholder dies early, having paid fewer premiums, the insurance company will face a larger expense.
This tendency of women to seek limited coverage is liable to change as they enter the workforce in increasing numbers. Working women now have greater financial responsibilities. Moreover, when both spouses contribute to the household income, their insurance policies must provide coverage proportionate to their financial contribution.
Men are riskier propositions
Apart from the mortality factor and coverage needs, men have a tendency to indulge in risky behaviour. For instance, they have a higher likelihood of driving rashly, which additionally leads to higher auto insurance premiums for men. Men are also more likely than women are to take on high-risk jobs, smoke and maintain unhealthy lifestyle habits. Such factors also lead to higher insurance costs for men.
Gender equality hits Europe
Insurance industry watchers have been crying foul over the preferential treatment extended to women for years. 21 December 2012 ended such discrimination in Europe following a gender equality directive implemented across the European Union. Before the directive came into force, women within these countries were extensively encouraged to purchase life insurance and avail of the lower rates.
Now that gender inequality in the insurance sector has been erased in Europe, it could eventually extend to other parts of the world. For now though, Indian women will still have access to lower life insurance rates. Make the most of it!
(The author is the CEO of MyInsuranceClub.com, an online insurance price & features comparison portal)