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LSDefine
Simple English definitions for legal terms
risk factor
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A quick definition of risk factor:
A risk factor is a term used in insurance to estimate the cost of present and future claims based on a mortality table. It is one of the elements used by life insurers to calculate premium rates. Essentially, it is a way for insurance companies to assess the likelihood of a policyholder making a claim and how much that claim might cost.
A more thorough explanation:
Definition: A risk factor is an estimated cost of present and future claims based on a mortality table used in life-insurance ratemaking. It is one of the elements that a life insurer uses to calculate premium rates.
For example, if a person has a high risk factor due to their age, health, or lifestyle choices, they may have to pay a higher premium rate for their life insurance policy. This is because the insurer expects to pay out more claims for that person based on their risk factor.
Another example of a risk factor is a person's occupation. If someone works in a high-risk job, such as a firefighter or construction worker, they may have a higher risk factor and therefore a higher premium rate for their life insurance policy.