Some companies, such as Progressive Life Insurance, don’t underwrite policies directly but make policies available through other insurers.
Factors Influencing Cost
Type of Policy
Since permanent life insurance policies are designed to last your entire life, they’re more expensive than term policies. In fact, a permanent policy premium can cost up to 10 times that of a term policy for the same amount of coverage (see chart above). Generally, whole life insurance has the highest premiums of permanent policies, while universal life insurance is more affordable—both are intended to cover you as long as you’re alive, but whole life insurance generally guarantees your premium won’t increase as you age .
If you want to extend a renewable term life insurance policy past its expiration date (and you haven’t converted the policy to permanent coverage), your premium will reset based on your current age. And it will reset every year after that you want to keep the policy, quickly outpacing the relative cost of a permanent life insurance policy with the same amount of coverage.
Coverage Amount and Term
The amount of coverage you purchase will also impact your premium. The more coverage you want, the costlier your policy will be. How should you choose your coverage amount? One way is to multiply your annual income by ten and add the amount of money each of your children will need for college. A similar approach is to use the DIME method, which considers your debt, income, mortgage, and children’s education.
While these calculations make for a good starting point, you’ll want to think beyond your salary. The Insurance Information Institute recommends purchasing at least enough life insurance to replace the income you earn for your family, including “hidden” earnings and benefits, such as employer-provided health insurance and home services you provide, such as childcare.
For term life insurance policies, the length of the term will also affect your monthly cost. A ten-year term policy will have cheaper premiums than a 30-year term policy because the coverage period is shorter.
Health and Demographics
Life insurance companies consider several individual factors that are out of your control when assessing the risk to insure you. These include:
- Age: Younger applicants typically pay the lowest premiums since they’re more likely to pay premiums for longer. Premiums usually increase with age, meaning the older you are when you start a policy, the higher your premium. Plus, getting life insurance as a senior can be difficult, since many insurers cap their issue age at 80.
- Gender: According to the CDC, men have a shorter life expectancy than women—73.2 years compared to 79.1 years. So, they tend to pay higher premiums for the same coverage. Most life insurance companies offer coverage to all gender identities, but you may need to submit additional documentation if you’re transgender.
- Health: People in excellent health pay the least for life insurance compared to those of the same age with worse health. If you have health issues such as diabetes or high blood pressure, you’ll probably pay more for coverage. If you have a life-threatening condition, life insurance companies may deny you coverage.
- Family medical history: Even if you’re in excellent health, a history of hereditary conditions or severe illness in your family might raise your life insurance premiums. For example, if more than one person in your family was diagnosed with the same type of cancer, you may be required to provide more detail about your family medical history and will likely pay more for coverage.
If you’re a mountain climber or skydiver, your increased risk of death will be reflected in higher premiums. Similarly, a high-risk career may raise your premiums. A firefighter or pilot will pay more for life insurance than an accountant. And if you smoke or drink heavily, that’ll raise your premiums as well. However, some companies may lower your life insurance rate if you quit smoking.
Credit-Based Insurance Score
In some states, life insurance companies consider your credit-based insurance score when they set your premiums. This score is based on the information in your credit report, such as recent bankruptcies and debts. While your credit doesn’t play a role in your life insurance premiums, specific details in your credit history could.
The features your policy comes with and any endorsements you add can impact your premiums. For example, some term policies are renewable or convertible to a permanent policy; those that aren’t may be more affordable. Term policies that offer a return of premium in the event that you die outside of the policy term will be significantly more costly. And term and permanent policies that include living benefits or other riders, such as guaranteed insurability, may cost more as well.
While cost is an important consideration, make sure the policy has the features you need. Evaluate the life insurance company based on its financial strength and customer satisfaction. The best way to make an informed decision is to compare life insurance quotes and research your options.
How To Save Money on Life Insurance
Although many of the factors influencing your life insurance premiums are out of your control, there are a few steps you can take to lower your life insurance costs.
- Make healthy choices: Reduce your risk by giving up smoking, quitting risky recreational activities, and exercising regularly. Making healthy choices may allow you to qualify for a lower risk class, which could result in lower premiums.
- Buy at a young age: The best time to buy life insurance is when you are young. You’ll lock in a lower rate and pay less for life insurance over the course of your lifetime.
- Compare quotes: Each life insurance company will set your premiums differently, so it’s important to compare quotes for the coverage you need. For example, smoking marijuana could put you in an entirely different grade class at some companies. If you’re in remission from cancer, you may qualify for standard rates at one company, while another may deny you coverage altogether.
- Consider group life insurance: Enrolling in an employer-sponsored life insurance plan may save you money. Regardless, you should ensure the policy provides the coverage you need and is portable if you decide (or are forced) to leave your job.
- Take advantage of discounts: Some insurers may offer discounts for bundling your life insurance policy with a home or auto policy, or for paying your premiums annually. Some insurers even offer discounts to policyholders for making choices that can benefit your well-being, such as taking a walk or buying healthy food.
- Buy a convertible term policy: If you can’t currently afford a permanent policy, but buy a convertible term policy, you can convert to a permanent policy in the future without taking a medical exam. Your premium will still be higher when you convert (because whole life insurance premiums are more expensive), but won’t increase if your health has worsened.
- Opt for traditional or accelerated underwriting: Simplified and guaranteed issue policies typically come with higher premiums than policies that use traditional or accelerated underwriting. While it may be inconvenient to get a medical exam or answer a detailed health questionnaire, it can save you money over time.
Is Life Insurance Worth the Cost?
Life insurance offers financial protection for your loved ones in the event that you die while they depend on your financial support. The best term life insurance is affordable and sufficient for most people, ensuring your family is provided for if you die before your debts are paid or your children are grown. In most cases, if you have dependents, life insurance is worth the cost.
Are Life Insurance Payments Taxed?
No. A life insurance policy death benefit is generally not included in your beneficiary’s gross income, so your family won’t have to pay taxes on the proceeds. However, you’ll need to report and pay taxes on any interest accrued after you receive the death benefit. There are also certain instances when you may have to pay estate taxes, inheritance taxes, or both.
Can I Withdraw From My Life Insurance?
If you have a permanent life insurance policy, there are several ways you can withdraw money from it. You can take out a low-interest loan against the policy, withdraw money from the policy (tax-free up to the amount of premiums paid), or surrender the policy. You can’t withdraw from a term life insurance policy, but you may be able to access a portion of the death benefit ahead of your death if you have a life insurance policy with living benefits.
When determining averages for term life insurance premiums, we collected quotes from 10 of the top life insurance providers for four different age groups (30, 40, 50, and 55) for males and females in excellent health located in Denver, Colorado. Quotes were collected for 30-year policies in amounts of $500,000 and $1 million. When multiple premiums are available for the same age, gender, and risk class, the lowest available premium from each insurer is used in determining the averages.
When determining averages for permanent life insurance premiums, we averaged quotes from two companies for men and women in excellent health living in Denver, Colorado. We collected quotes for a $500,000 whole life insurance policy for applicants aged 30, 40, 50, and 60.