Author
Bowtie Team
Updated on
2025-07-10
Disclaimer: This article is translated with the assistance of AI.
Term life insurance keeps getting cheaper! Take a 30-year-old non-smoking male as an example: with a $1 million coverage, Bowtie Term Life premiums are just $38 a month—less than your daily café latte! So, how do insurance companies make money with such low premiums? How are term life rates calculated? Michael Chan, seasoned actuary and Co-Founder & Co-CEO of Bowtie, spills the secrets behind these affordable plans.
How Do Insurance Companies Determine Life Insurance Premiums?
The pricing of life insurance is primarily influenced by two key factors:
- The policyholder’s inherent risk
- The insurance company’s expenses and profit margins for the product, as well as the product’s risk pool
Policyholder’s Inherent Risk
For a long time, actuaries have studied factors that affect mortality rates. The most commonly used factors include age and gender because:
- Statistics show they have a significant impact on mortality
- Tracking and verifying these factors is simple and cost-effective
In addition to these two factors, the smoking factor was later introduced. In fact, insurance companies were among the first to document that smoking habits increase the incidence of cancer .
Smoking’s impact on mortality is akin to aging 5 to 10 years . For instance, the 10-year mortality rate of a 55-year-old male smoker is similar to that of a 65-year-old non-smoking male.
Beyond smoking, many other factors affect health, such as sleep, diet, and exercise. However, tracking these is often challenging and costly, so insurance companies typically don’t factor them in.
Expenses and Profit Margins
Considerations for expenses and profits can be broadly divided into three areas:
1. Distribution and marketing costs: This includes intermediary commissions for agents, brokers, and banks, as well as online marketing expenses.
2. Insurance company’s operational costs: Such as underwriting, claims processing, and customer service.
3. Reserves and cost of capital: Life insurance companies need sufficient capital to cover claims. For example, if a 30-year-old non-smoking male paying a monthly premium of $38 passes away, Bowtie must compensate the policy beneficiary with $1 million. Therefore, insurers need to set aside extra funds. The amount reserved depends on the risk the insurer takes on, often guided by regulatory requirements, and holding these reserves also represents a cost.
Can Consumers Estimate Mortality Rates Using Premiums?
Term life insurance is straightforward—your premiums directly reflect mortality rates.
For instance, a 30-year-old non-smoking male purchasing Bowtie Term Life with a coverage of $1 million pays a monthly premium of just $38. From this, we can estimate the insured’s monthly mortality rate to be around (or less than) 0.0038% (i.e., 38 / 1,000,000). Over a year, the mortality rate would be approximately 0.046% (i.e., (38 x 12) / 1,000,000).
While a 0.046% mortality rate might seem incredibly low, the risk still exists. This percentage means that out of 1 million 30-year-old non-smoking males, we estimate about 460 will pass away within a year due to illness, accidents, or other causes. Sadly, there’s no way to predict who those 460 individuals will be.
The Actuarial Society of Hong Kong published the Hong Kong Life Insurance Policyholder Mortality Report 2018 in 2020. This study covered data from 2010 to 2017 from 17 major insurance companies. Comparing the findings with the 2001 Hong Kong Life Insurance Policyholder Mortality Report (covering data from 1991 to 2000), the study revealed:
- Average life expectancy at birth for males increased from 78.6 to 82.5 years, and for females from 83.6 to 86.8 years.
- The proportion of accidental deaths in the under-25 age group dropped significantly—males from 38% to 18%, and females from 38% to 14%.
- For males aged 25 to 45, the proportion of deaths due to cardiovascular diseases rose notably, from 8% to 12%.
- In the over-45 age group, deaths from respiratory diseases increased markedly—males from 9% to 16%, and females from 8% to 13%.
However, mortality rate figures are influenced by factors like the study population and the years covered. Using the insurance data above as an example, policyholders who have undergone underwriting are generally healthier than the average population. Therefore, these figures don’t fully represent the entire Hong Kong population.
Bowtie Term Life Premiums Beat Competitors—Sustainable?
Bowtie aims to deliver high-value products to customers by passing on cost savings through lower premiums. Our competitive pricing edge comes from the virtual insurance company model, which includes:
1. No commissions paid to intermediaries (like agents or banks), slashing sales costs. Bowtie customers can apply directly online—a big plus for those wary of hard-sell tactics.
2. Leveraging advanced tech to automate processes and cut administrative expenses:
- Most cases are handled by Bowtie’s in-house underwriting system, which accurately determines premiums based on the insured’s risk profile, while the underwriting team focuses on reviews.
- Bowtie digitizes all documents. While paper itself isn’t costly, printing, mailing, retrieving, and reissuing lost files add up—expenses that ultimately get passed on to customers.
3. Bowtie Term Life is designed to be simple, offering pure protection without savings components. This means there’s no need for a large investment or actuarial team to manage funds.
Bowtie believes that a solid and sustainable business model is key to delivering maximum value to our customers. That’s why we focus purely on insurance, sharing risks through a pooling mechanism. We don’t sell customer data to third parties for profit, nor do we rely on aggressive investment strategies to make money.
Are Low Premiums Only for Healthy People?
Bowtie doesn’t only insure the super healthy. In fact, our premiums are calculated to reflect each policyholder’s specific risk profile. At Bowtie, our goal is to get more people insured, helping to close Hong Kong’s mortality protection gap .
The following content is provided by Bowtie and is unrelated to the author of this article.
Get Insured Now and Enjoy Exclusive Offers
Related Articles
![[imSure VHIS Survey] Key Factors for Buying Family & Self Coverage](https://www.bowtie.com.hk/blog/wp-content/uploads/2019/08/19112025/imsure_survey.jpg)
Other Topics
Blood HealthBowtie StoryBusinessCancerChinese MedicineCovidCustomer ReviewDeathcareDental HealthDigestive HealthDoctor SpecialistsDrugsEar, nose, and throatEndocrinology & DiabetesExercisingEye HealthFinanceFood & NutritionGroup Medical InsuranceHealthHealth GlossaryHeart HealthHospitalsHot TopicsImmigrationKidney HealthKids HealthlearnLiver DiseaseLung & RespiratoryMedical Check UpsMen’s HealthMental HealthNervous SystemOrthopedicsOutpatient ServicesParentingPhysiotherapyPress ReleasePrevention/VaccinationProduct PhilosophyRealtyRheumatic DiseaseSeniors HealthSkin IssueSymptomsTreatment PlanUrologyWomen’s Health女性健康