Final answer:
Coverage choices leading to a lower life insurance premium include term policies, lower coverage amounts, higher deductibles, and fewer optional coverages. These reduce insurance costs by decreasing the insurer's risk and potential payout, while also passing more risk onto the policyholder.
Step-by-step explanation:
When starting a life insurance plan, some coverage choices or options that could lead to a lower premium include selecting a term life insurance policy rather than a whole life policy, opting for a lower coverage amount, choosing a higher deductible, omitting optional coverage add-ons like riders for critical illness, and maintaining a healthy lifestyle to qualify for better rates. These choices tend to lower the premium because they reduce the insurance company's risk or the potential payout.
The effect of these choices on mitigating risk is significant. For instance, a higher deductible means the policyholder will pay more out-of-pocket before insurance kicks in, which reduces the likelihood of small claims and encourages the policyholder to be more cautious. Selecting lower coverage amounts directly reduces the insurer's liability, which results in a lower premium but also means less financial support for beneficiaries. By foregoing additional riders or optional coverages, the policyholder is accepting more risk themselves rather than transferring it to the insurer. Maintaining a healthy lifestyle can mitigate the risk of early death, which is appealing to insurers and thus can result in a more attractive premium.