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The Cost of Life Insurance: What Factors Affect Your Premium?

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The amount you pay for a life insurance policy is based on a number of factors, including your coverage level, policy type, age, health, gender, and occupation. Since everyone's situation is different, it can be difficult to pinpoint exactly what you'll pay without talking to an agent. However, we're here to explain how these various factors impact your premiums, as well as share ways that you can lower your rates.

Coverage Level

It should come as no surprise that the amount of coverage you choose plays a big part in what kind of premium you pay. Higher coverage equals higher premiums. For 2 people whose personal factors are roughly the same, one with a coverage level of $1,000,000 can expect to pay anywhere from 3–4 times more than someone with coverage of $250,000.

Permanent vs. Term Insurance

There are 2 general types of life insurance policies—permanent and term. Permanent life insurance provides coverage until the policyholder passes away or decides to cancel the plan. These are designed for people who want to ensure that their beneficiaries receive a payout, regardless of what age they pass away.

Term insurance is only available for a set length of time—usually 10, 20, or 30 years.
These are often purchased by those who are younger or middle-aged and want to protect their families in the event of their early death. If at the end of a term policy, you want to maintain your coverage, you have 1 of 3 options: renew your current policy, find new term insurance, or purchase a permanent plan.

Beyond overall design, there's also a major difference in cost between permanent and term insurance.

With permanent policies, premiums are more expensive up front but get locked in for the duration of the plan. Term insurance rates are much more affordable at first but typically increase significantly if you need to renew.

When it comes to what you'll pay, there are pros and cons to both types of insurance:

  • Permanent policies are meant to ensure payouts and offer peace of mind that your premiums will never increase. That said, some people find it difficult to consistently keep up with pricy payments over the span of their lives. If you're unable to make payments due to periods of unemployment, financial setbacks, or retirement, your policy will lapse and your paid premiums will belong to the insurance company.
  • Term insurance policies only guarantee a payout in the event that you pass away during the length of the plan. You'll be paying for benefits that no one may ever see, but you'll also be paying much less. These plans can be best for those who want to protect their spouse and kids should they die too young. When these policies end, many people decide they no longer need insurance for reasons like their kids have grown up and are financially secure.

Age

You'll likely pay much less for life insurance if you buy a policy at a young age. As you get older, you'll see premiums for new policies go up, with the biggest increases happening around your mid 50s and again in your mid-to-late 60s. Since those with permanent policies pay the same premiums for the entirety of their plans, locking in a lower rate early could save you money later on.

In fact, the difference between purchasing a permanent policy at age 65 versus 25 could be hundreds if not thousands of dollars.

If you opt to go with less expensive term insurance, you may be perfectly happy to let your policy come to an end. But if you do decide to renew, your age will be a major factor in determining your new rates—and you can expect them to be drastically higher. What's more, companies often avoid offering term insurance to people over 75, so if you're elderly and need insurance, a much more expensive permanent policy might be your only option.

Health

Healthier applicants receive less expensive life insurance premiums than people with conditions that could contribute to premature death. Insurance companies not only look at how healthy you are now, but how healthy you're likely to stay over the duration of your plan. Factors they consider include:

  • Whether or not you're a smoker
  • Whether you're obese, overweight, underweight, or at healthy weight
  • Whether you have any chronic conditions such as diabetes or heart disease
  • Whether you have a family history of any health problems

To determine the status of your health, many companies require medical exams that involve steps such as bloodwork, drug testing, and screenings for certain diseases. Some companies offer policies that don't require an exam, though these typically have higher rates.

Gender

According to data from a 2016 report by the United States Centers for Disease Control (CDC), the average life expectancy for women is 81.1 years while men live to be an average of 76.2. Since it's expected that women have a longer time to pay towards their benefits, they often have lower premiums.

Men are also viewed as being greater risks overall, leading to much higher insurance payments. Men have a larger percentage of dangerous jobs and participate in more frequent high-risk hobbies like extreme sports and dangerous home repairs. Lifestyle factors also come into play, as men have been shown to engage in more unhealthy habits like binge drinking, smoking, and eating high-fat food. Even stress levels and less emotional support from friends have been named among reasons why insurance rates are higher for men.

Even with the same policy, same age, and same levels of health as a woman, a man might pay hundreds of dollars or more a year on his premiums.

Occupations & Hobbies

Certain jobs, such as commercial fishing, logging, roofing, or aircraft piloting, come with a higher risk of accidental death than office jobs or other indoor positions. People in these dangerous occupations will likely pay higher premiums, as will those who engage in high-risk activities such as mountain climbing, skydiving, car racing, base jumping, and scuba diving.

Monthly vs. Yearly Payments

Another thing to consider is how you want to pay your premiums. With most insurance companies, you'll have the option to make your payments either monthly or yearly, and each has its benefits. Paying monthly allows you to split the amount into smaller payments, which could be easier on your budget. But paying the annual sum up front could make you eligible for a discount, generally somewhere between 2% and 8%. Your insurance company should provide you with a breakdown of per-month cost as well as information on any discounts you might receive for paying yearly.

Ways to Lower Your Rates

No one wants to overpay for life insurance, and thankfully a lot of it's up to you to determine what kind of rates you'll receive. While you don't have control over things like your age or gender, there are things you can do to help lower the cost.

  • Determine how long you'll really need a plan
  • Buy your policy when you're younger
  • Don't smoke
  • Maintain a healthy weight
  • Get yearly checkups
  • Avoid high-risk activities
  • Consider paying your yearly premium up front

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