If you’re looking for an insurance policy or trying to estimate how much you’ll pay for a lifetime of coverage, check out this guide to learn about the cost for term and whole life policies.
How Life Insurance Rates Are Calculated
Life insurance rates are based on several factors, but the general rule is that premiums correlate with your age and health. Younger, healthier individuals will have the lowest premiums because they’re considered less likely to pass away (resulting in a death benefit payout) than older individuals or those with chronic or terminal illnesses.
Keep in mind, the goal of insurance companies is to collect as much money as possible and pay out as little as possible. They want you paying premiums throughout your life, until the point where coverage becomes so expensive that you lapse or cancel it — which results in them profiting from all your premiums without having to pay a death benefit.
Insurance carriers will have unique processes and differences in how factors are weighed, but here’s what most insurers look at when determining the cost of life insurance premiums:
- Age: Insurance premiums tend to go up with age, because life expectancy goes down and insurance carriers are more likely to have to pay out a death benefit.
- Health: Healthier individuals have lower premiums because they have a longer life expectancy, so insurance companies will look at your health status including pre-existing conditions, height, and weight to get an idea of how healthy you are. You may also be required to get a medical exam to obtain coverage.
- Gender: Women have longer life expectancies than men (80.5 for women, 75.1 for men), so they usually have cheaper premiums.
- Smoking Status: Smokers have a higher risk of developing health issues like respiratory diseases, so they usually have higher life insurance premiums.
- Family Medical History: Even if you’re healthy, your insurer may ask for information about your family’s medical history to determine if you have a higher risk of developing conditions later in life.
- Lifestyle: Your lifestyle may put you at a higher risk of developing health issues or dying earlier than your estimated life expectancy. Having a high-risk job like being a police officer or participating in risky activities like mountain climbing can increase your premiums.
- Policy Type: Term life insurance tends to be less expensive than whole life insurance because term policies don’t build cash value and only provide coverage for a set period of time. For example, a 10 year term policy purchased when you’re 20 will be cheaper than a whole life policy purchased at the same time, because the term policy is basing premiums on your risk when you’re young while the whole life policy has to base premiums on your projected life expectancy.
- Policy Size: The size of the death benefit payout will also influence how much life insurance costs, as a higher payout will require more expensive premiums for both term and whole life policies.
- Insurance Riders: Riders are optional provisions offered by insurers that amend the terms of the policy to add benefits for a higher cost. Common riders include accelerated death benefit riders, family income riders, and long-term care riders among others. Selecting one or more riders will add to the cost of life insurance premiums.
Term Life Insurance Rates By Age Chart
According to NerdWallet data from January 2022, these are the average annual rates of a $500,000 20-year term life insurance policy for super preferred applicants:
As the chart above indicates, annual life insurance premiums are much cheaper for younger individuals and the cost increases dramatically with age. For women, the cost increases +49.5% from their 30s to 40s, +127.2% from their 40s to 50s, +156.6% from their 50s to 60s, and +390.4% from their 60s to 70s. Now consider that these are the rates for super preferred applicants, premiums for standard or preferred applicants may be 60-85% higher.
As a result of the high cost of life insurance as you get older, some individuals may decide they no longer want coverage. If this applies to you, don’t cancel or lapse coverage — sell it through a life settlement. A life settlement can yield a return 4-11x higher than the cash surrender value, use our life settlement calculator to see how much your policy could be worth or contact us for more information.
Whole Life Insurance Rates By Age Chart
According to NerdWallet data from April 2022, these are the average annual rates of a $500,000 whole life insurance policy for super preferred applicants:
Whole life insurance premiums are set when you purchase the policy and will remain the same as long as you keep the policy in force. So if you buy a policy when you’re 30, you’ll continue paying that premium for the rest of your life. This means you’ll likely pay higher premiums initially while you’re young, but your coverage in your senior years will be much cheaper than what you’d pay for a term or starting a new whole life policy. However, similar to term insurance — the cost of a whole life policy increases with age the longer you wait.
When Do You Need Life Insurance?
The primary purpose of life insurance is to provide a financial safety net for loved ones after a policyholder dies. Many people choose to purchase life insurance when they get married, have kids, or take on another notable financial obligation such as buying a house that would cause hardship if the policyholder passed away and was no longer able to contribute towards.
Are You Too Old for Life Insurance?
Once you’ve established a financial safety net through a lifetime of saving and once your dependents are financially stable on their own — it may not make sense to keep life insurance coverage anymore. Retired policyholders may decide premiums are too expensive and not worth the cost of maintaining coverage. When this occurs, they can choose to lapse, surrender, or sell their policy.
Lapsing coverage will result in no return, surrendering it will result in a small cash payment from the insurance company, but selling it will yield the highest value. By taking the policy to the free market through a life settlement, you can get multiple bids which raises the payout you’ll receive. Contact us to learn more about this option.