The cost of life insurance is influenced by factors such as death benefit amount, type of policy, riders, age, gender, health, tobacco use, family history, lifestyle, and occupation.
Updated
Table of Contents
Table of Contents
Key Takeaways
- Death Benefit Amount affects the premium, with higher coverage resulting in higher costs.
- The type of policy (term or whole life) impacts the cost, with term policies generally cheaper.
- Riders add extra benefits but increase the cost.
- Age and gender influence premiums, with younger individuals and females typically paying less.
- Health, tobacco use, family history, and lifestyle/occupation can raise or lower costs based on risk factors.
If you're thinking about buying life insurancecoverage, you'll likely want to know how much the premium will cost. Life insurance premiumscan be based on many factors, and the price of your policy will be determined by your unique situation. Although these variables can differ quite a bit by provider and policy, there are a few common ones. By understanding how these factors affect your premium, and the overall cost of life insurance, you can get an idea of what to expect before formally applying.
1. Death Benefit Amount
The primary benefit of a life insurance policyis the death benefit. This is the amount the insurance company would pay to your beneficiary if you died while insured. So, a policy with a $500,000 death benefit would likely cost more than the same type of policy with a $250,000 benefit.
Tip
The more coverage you buy, the higher the premium.
2. Type of Life Insurance Policy
There are several different types of life insurancecoverage, which can have different costs. One significant difference is whether you apply for a term life insuranceor whole life insurancepolicy. Term coverage is temporary and has a set expiration date. If you outlive the term, the coverage ends. A longer term can be more expensive than a shorter term because it lasts longer.
Whole life insurance policies can last your entire life, as long as you keep paying the premium. This tends to make their premiums more expensive than term life insurance policies.
3. Riders
When purchasing life insurance, you'll likely have the option to add additional features to your policy. These are called ridersand they add extra benefits, such as the insurance company paying your premium if you get disabled.But in exchange, riders can impact the cost of life insurance.
4. Your Age
Age is another common factor in determining the cost of life insurance. The older you are, the more you could end up paying for life insurance coverage. This is because a younger applicant has a longer life expectancy.
For example, the average 20-year-old will live longer than the average 70-year-old. This means they are statistically less likely to pass away any given year and have more time to pay life insurance premiums. As a result, the insurance company typically charges younger applicants less per year.
5. Your Gender
Females on average live 5.8 years longer than males.1 Since females have a longer life expectancy and more time to pay premiums, their cost of life insurance could be lower.
6. Your Health
When you apply for life insurance coverage, the insurance company usually reviews your health through a process called underwriting.
Did You Know?
Underwriting typically involves checking your medical records, collecting your blood and urine for lab testing, or asking you to have a medical examwith a nurse or doctor.
Healthy applicants with good habits typically pay less. On the other hand, if you have certain health conditions, you may need to pay more for coverage. If an applicant has a serious, life threatening condition like cancer or a recent heart attack, the life insurance company could deny their application altogether.
7. Tobacco Use
Life insurance companies also check whether you use tobacco, since this can lead to serious health problems.When you use tobacco, chances are your cost of life insurance will be more expensive, and this typically applies even if you don't have any other health problems.
If you quit smoking after you sign up, you might be able to request to go through the health underwriting again to possibly get a lower rate. Keep in mind that going through the underwriting process could raise your rate if the examination reveals health issues or underwriting raises other concerns.
8. Family History
As part of the application, the insurance company could also ask about the medical history of your immediate family like your parents and siblings. If you have a family history of health problems, like multiple family members with diabetes, this could increase your cost of life insuranceas the insurer may worry you could develop the same issue.
9. Lifestyle & Occupation
Finally, the life insurance application could ask about your job, hobbies and lifestyle. If you work in a dangerous field, you may need to pay higher premiums to make up for the extra risk. If you have any dangerous hobbies, like skydiving or race car driving, this could also increase your costs. Finally, the insurance company could check your driving and criminal records. If so, these could lead to a higher cost or outright denial of coverage.
You can get a more specific quote by contacting a financial representative. The insurance company will prepare their quote and you can then decide whether to accept the policy or not. Still, understanding the factors at play beforehand can give you an idea of what to expect so you can minimize any surprises as you get started with the process.
Plan your finances by understanding what affects your life insurance costs. Get a Life Insurance Quote
Sources
- Life Expectancy. https://www.cdc.gov/nchs/fastats/life-expectancy.htm.
