Thinking of purchasing new life insurance? Before you make a commitment, it’s important to understand how the annual premium for a policy is determined. There are various factors that can influence which insurance risk class you're assigned to.
Aside from health, your age is something life insurance companies take into consideration. The older you are when you purchase a policy, the more expensive the premiums will be. This is because the cost of life insurance is based on actuarial life tables that assign a likelihood of dying while the policy is in-force—and unfortunately, the older you are the sooner that day is likely to come. Read on to see more clearly how age impacts the cost of life insurance and why it may be more cost-effective to buy a policy when you are younger.
Key Takeaways
- Your age is one of the primary factors influencing your life insurance premium rate, whether you're seeking a term or permanent policy.
- Typically, the premium amount increases, on average, about 8% to 10% for every year of age; it can be as low as 5% annually if your 40s, and as high as 12% annually if you’re over age 50.
- With term life insurance, your premium is established when you buy a policy and remains the same every year. With some permanent life insurance policies, the premium rises every year.
- Age also affects whether a person will qualify for life insurance coverage at all, with qualifying medical exams getting increasingly stringent.
- The reason is that the older you are, the more likely you are to become ill or die while under coverage.
How Life Insurance Rates Work
Life insurance is designed to pay out a death benefit to the person or persons you name as beneficiaries when you pass away. In exchange for this coverage, you pay a premium to the life insurance company. In the case of term life insurance, you'd pay these premiums for a set term prescribed by the policy. With permanent life insurance coverage, premiums are due as long as the policy remains in effect.
Companies that sell life insurance can use actuarial tables to help set life insurance rates. Actuarial tables are used to estimate life expectancy and mortality rates. These tables, along with other factors, can determine how much you'll pay for life insurance coverage.
Tip
Term life insurance policies typically offer lower premium rates compared to permanent life insurance.
Risk Class and Life Insurance Premiums
When calculating how much you'll pay for life insurance, your risk class comes into play. Life insurance companies assign applicants to various risk classes, based on factors such as:
- Age
- Gender
- Overall health, including weight and the presence of preexisting conditions
- Smoking status
- Family history
- Occupation
- Participation in risky hobbies, such as hang-gliding or sky-diving
If you're assigned to the lowest risk class, which may be referred to as Preferred Plus or Elite, depending on the insurance company, you'll typically pay the lowest premiums. On the other hand, you may pay the most for life insurance if you're assigned a substandard rate based on health, smoking status, age, or other risk factors.
In addition, if you’re considering a whole life or universal policy, the rate of return on the cash value will drive the premium up or down. A higher rate of return on cash value can go a long way toward keeping policy premiums to a minimum. A lower-than-expected return on cash value will require a higher funding amount to keep the policy in force longer. And age is the most important contributor to both term and whole life insurance rates.
Tip
Changing occupations, losing weight, or quitting smoking could all help to improve your insurance risk classification and lower your premiums.
How Insurance Premiums Rise With Age
The annual premium, or “rate,” for a term life insurance policy is determined at the time of purchase and set for the duration of the policy. “The rate is for the duration of the term,” says Frazzitta.
Typically, the premium amount increases on average by about 8% to 10% for every year of age, according to Ted Bernstein, Director, Life Insurance Concepts Inc. “A 45-year-old male will pay on average $1,125 for a new, 20-year term policy with $1,000,000 of coverage,” he says. “The same policy purchased at age 46, will cost $1,225—and $1,345 a year if purchased at age 47.”
The reason every year inches up the cost of term life insurance is simple math. “Every birthday puts you one year closer to your life expectancy and thus, you are more expensive to insure,” says Huntley. He estimates that rates increase every year by 5% to 8% in your 40s, and by 9% to 12% each year if you’re over age 50.
To be able to hold term life insurance prices steady—rather than raising premiums every birthday—insurers spread the premiums you would pay over 10, 20, or 30 years and average them into one payment, Huntley explains. Instead of paying low premiums when you’re young and very high premiums when you’re older, you pay the same amount every year.
Once the term of your current term policy expires, you could face very steep rates based on your age.“If the insured outlives the initial term, the insurance carrier must adjust the premium to reflect their new age,” says Huntley.
| Life Insurance Rates by Age | |||||
|---|---|---|---|---|---|
| Age | Gender | $250,000 | $500,000 | $750,000 | $1,000,000 |
| 25 | Male | $12.53 | $18.99 | $26.02 | $30.96 |
| Female | $11.04 | $15.84 | $21.18 | $23.78 | |
| 30 | Male | $12.70 | $19.31 | $26.09 | $31.45 |
| Female | $11.26 | $16.53 | $21.76 | $25.39 | |
| 35 | Male | $13.45 | $21.07 | $28.73 | $34.40 |
| Female | $11.73 | $17.63 | $23.99 | $28.38 | |
| 40 | Male | $17.03 | $27.76 | $38.17 | $48.66 |
| Female | $15.27 | $24.48 | $33.58 | $42.14 | |
| 45 | Male | $26.86 | $44.46 | $63.66 | $82.36 |
| Female | $21.70 | $36.91 | $53.03 | $67.15 | |
| 50 | Male | $39.34 | $66.36 | $96.51 | $125.16 |
| Female | $30.44 | $54.39 | $79.25 | $98.04 | |
| 55 | Male | $61.51 | $107.46 | $158.16 | $204.36 |
| Female | $45.33 | $83.77 | $123.32 | $158.79 | |
| 60 | Male | $106.25 | $183.86 | $272.76 | $354.26 |
| Female | $76.13 | $137.57 | $204.02 | $262.98 | |
Permanent life policy rates may be either level (fixed) or they may vary. If they vary, they usually rise as you age. “The premiums are determined by the insurance carrier each year based on actuarial tables," says Frazzitta. "And they increase at each successive age because each year there is a bigger drain on the cash value due to the rising mortality charges."
Qualifying for Coverage
Huntley says age can affect whether a person will qualify for life insurance coverage at all. “Older ages can certainly limit the applicant’s options.” For example, most carriers only offer 20-year term policies to those ages 18 to 70, he says. After that, you can't get a term that lengthy.
Other requirements also increase as you age. Every carrier has underwriting requirements that typically involve certain health-related testing. The older you are, the more testinga carrier will require. For instance, a 44-year-old applying for $500,000 of coverage with American General Life Insurance Company will likely be required to have a medical exam, including blood and urine tests. At 45, however, the same person looking to purchase the same coverage may need to have a resting EKG along with the medical exam and lab work.
Additional testing requirements certainly can have an effect on rates because they can catch more health issues. In the case of more senior applicants, life insurance carriers have also begun assessing one's mental condition. Applicants can be declined for failing a cognitive evaluation such as a memory recall test.
Note
No exam life insurance policies allow you to get coverage without a medical exam. But you may pay higher premium costs.
At What Age Should You Get Life Insurance?
Life insurance will be less expensive when you are younger and healthy. If you will need life insurance coverage in the future (e.g., you plan to have a family or send a child to college several years down the road), it may make sense to get it while you are younger to reduce your annual premiums.
As You Get Older, What Happens to the Cost of Life Insurance?
Life insurance premiums will increase on a policy if you buy it when you are older. At a certain point, many insurers will decline coverage altogether. Whole life policies can be issued on people as old as 80 or 85; however, term policies may have restrictions far younger, such as 65 or 70 years of age.
Is There Life Insurance Where Premiums Do Not Increase With Age?
Group life insurance policies tend to have level premiums for all members and do not discriminate by age, gender, or health. However, these types of policies generally have limited coverage and are not portable once you leave the company or end employment.
Do Women Pay More by Age for Life Insurance?
No. In general and all else equal, women tend to pay lower life insurance premiums than men. This is because women tend to live longer than men, on average.
The Bottom Line
Because every year of your life can tack dollars on your life insurance premium, try to buy any policy you’re considering before your next birthday. To ensure you receive the best rates for the coverage you’re seeking, obtain quotes from two or three of the best life insurance companies you can find.
If you're still looking, consider talking to an independent agent, who works with more than one insurance company. And, once you've found a favorable-sounding policy, be careful to buy no more coverage (dollar amount-wise) than you actually need.
