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How is the cost of life insurance determined?
One of the main considerations when purchasing life insurance is the cost. The cost of life insurance is determined during the underwriting process, during which insurance carriers will evaluate the information from your application and medical exam to calculate your premiums. Cost will also vary depending on the type of life insurance you’re interested in. Term life insurance tends to be the most affordable option, as you’re only paying for the policy for as long as you need it. On the other hand, permanent life insurance policies may be more expensive but provide coverage for your entire lifetime and offer a cash value component. Let’s walk through the different factors that affect the cost of life insurance.
Average Life Insurance Rates
You may assume the average cost of life insurance is expensive, but the fact is, you may be able to get substantial coverage at an extremely affordable rate—probably more affordable than you think. Term life insurance tends to be more affordable across the board, and generally speaking, individuals who are younger and in better health will have lower rate options. There’s truly never a better time than now to consider buying life insurance. The amount of coverage you’re seeking also factors into cost, so if you’re not sure how much insurance you need, an easy way to get started is with our free life insurance calculator.
Four Factors That Determine Life Insurance Rates
There are a number of factors that can play into the cost of your life insurance premium. Having an idea of what these are can be helpful prior to starting the shopping process. Learn more about the main components that impact the cost of life insurance below.
1. Type of Life Insurance Policy
The type of life insurance you have will directly affect the cost of the policy.Term life insurance policies are the most common and most affordable. One of the benefits of term life insurance is that you can choose the length of the coverage, typically 10, 15, 20, 25, or 30 years.Permanent life insurance policies are more expensive, but could have varying perks for some people. The two most common types of permanent life insurance are whole life insurance and universal life insurance.
2. Amount of Life Insurance Coverage
The longer your term length or the higher your coverage amount, the more expensive your premium will be. Therefore, it’s important to ensure you’re not purchasing more coverage than you need. If you’re unsure about how much coverage is right for you, our life insurance calculator can get you started.
3. Your Age and Gender
Your rates are determined during the life insurance application process, and they shouldn’t change over the lifetime of the policy. However, the longer you put off purchasing life insurance, the more expensive it will be, as the cost of premiums will increase as you age. Each year you delay buying life insurance, the cost can increase by an average of 8-10%. Your gender can also affect your life insurance rates. Women typically live longer than men, so they often are assigned lower life insurance rates during the underwriting process.
4. Your Health and Lifestyle
When applying for traditional life insurance—whether term or permanent—you’ll have to complete a basic medical exam. This is a quick and simple process that usually takes less than an hour. The life insurance medical exam is crucial to help determine your policy’s premiums, as your overall health helps underwriters determine how risky you’ll be to insure. Some factors that might affect your premiums include blood pressure, cholesterol, family history of chronic or serious illness, and lifestyle habits like nicotine use or recreational drug use. Additionally, if you participate in extreme sports or high-risk hobbies, you’re considered a greater risk to the insurance company and might be assigned a higher premium.
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The easiest way to learn more about your rate options for life insurance is by letting SelectQuote help. Our licensed insurance agents can quickly determine what kind of policy is right for you and work with you to help you understand the different factors that impact your rates.
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