Life insurance is a legal agreement between you and your insurance company. Under this contract, you agree to pay monthly premiums and in exchange the insurance company agrees to pay your named beneficiaries a lump sum when you pass away. This payout is called a death benefit and is only payable if your policy is active at your time of death.
Having a life insurance policy is essential to financial planning because it can provide your loved ones with a safety net when you pass away. Your beneficiaries can claim the death benefit and use it for any purpose, ranging from replacing lost income following your unexpected passing to covering payments like mortgage, education, upkeep, and even funeral costs. Knowing that your family and/or loved ones will be taken care of in your absence provides peace of mind.
Some policies – particularly permanent life insurance policies – have a living benefits option which allows you to take out part of your death benefit while you’re still alive. This generally happens under very specific circumstances like if you’re diagnosed with a terminal disease or if you develop chronic illness. Your policy will clearly outline these conditions so you should make sure to read it thoroughly. You can use the cash to pay for anything, including mortgage loans and medical expenses that are not covered by your health insurance.
How much does life insurance cost?
On average, a $500,000 term life insurance policy costs $19.3 per month while a whole life policy of the same coverage costs $192.65 per month for a healthy, 30-year-old, non-. Although a $500,000 life insurance policy is good enough for many people, your individual needs and circumstances should ultimately dictate how much coverage you choose to get.
For example, if your salary is on the higher side, you could get life insurance coverage upwards of $500,000. If your income is medium to low, you might consider coverage less than $500,000. Generally, a good rule of thumb is to take out a life insurance policy that’s at least 10 times your annual salary. Other factors like your age, number of dependents, recurrent expenses, health, lifestyle, and debts may also come into play and some of them will also affect your life insurance premiums.
What factors impact the cost of your life insurance premium?
Life insurance premiums refer to the rate you pay for the life insurance coverage. It varies significantly depending on your age and health, the type of policy you choose, length of coverage, as well as your lifestyle and habits. Knowing how these factors affect the cost of your policy will help you understand the various quotes you may get from insurance providers.
Age and Health of the Insured
Your age plays the biggest role in determining the amount of premium you’ll pay on a life insurance policy. That’s because many insurance companies use age as a reflection of life expectancy. The younger you are, the longer the time you have to pay premiums and the lower your life insurance rates are likely to be. At the same time, younger people are less likely to get ill compared to their older counterparts and this makes them less risky to insure. In fact, some insurance companies don’t even offer coverage to people who are above a certain age.
If you choose a stepped policy, your insurance provider will recalculate the cost of coverage each year on your birthday and revise the premium upwards based on the risk of age-related events happening (like frequent and chronic illnesses). The premiums typically increase by an average of 8% to 10% each year. That said, many insurance companies generally offer level life insurance policies where your premiums typically stay the same for the entire duration of coverage.
Your health status and medical history also play a big role in determining your life insurance premiums. Current and past health issues, including diabetes, anxiety and depression, high blood pressure and hypertension, sleep apnea, high cholesterol, and any other diseases typically lead to higher rates because they make you a risky applicant.
Insurance companies often get your health status by requesting a life insurance medical exam, through your past medical records or by examining prescription drug databases. Whatever the case, they’ll ask for your consent before performing a medical exam or accessing your medical history. Keep in mind that the underwriting process of a life insurance policy also includes your family medical history. Your rate may be higher if your family (parents and siblings) has a history of certain diseases such as cancer, congenital heart disease, melanoma and cardiovascular diseases.
Type of Policy (Term vs. Permanent)
There are two main types of life insurance coverage: term and permanent life. Term life insurance is usually cheaper than permanent life insurance. It provides coverage for a specific period of time – typically between 10 and 30 years. If you pass away within the specified term, your insurance company will give your named beneficiaries a payout. But if you outlive the policy, there will be no payout. Rather, your insurance provider will simply notify you that the policy has expired and you don’t need to make any more premium payments.
There are certain exceptions that may still ensure you get a payout even if you outlive the term length of a term life insurance policy. The most common is if your policy has a return-of-premium provision. This essentially means that the insurance company will refund your premium contributions as a payout. Some policies also allow you to renew coverage yearly at a revised premium. Your beneficiaries, then, get a payout if you die when the policy is in force.
Some insurance providers offer a term conversion rider that allows you to convert your term life insurance policy into a permanent life insurance policy without taking a new medical exam. This conversion usually has a strict deadline and must happen several months before the term policy expires. Term life insurance policies can be further categorized into four types: level term, decreasing term, renewable term, and return of premium (ROP).
Permanent life insurance provides lifetime coverage as long as you keep up with premium payments. It typically has cash value and investment features. Both features are important because they avail money that you can access while you’re still alive. You can use the accumulated cash to pay for future premiums or as security for loans. The two main types of permanent life insurance policies are whole life and universal life.
Permanent life insurance premiums are usually higher than term life insurance premiums because permanent life insurance policies provide coverage for a lifetime, which is potentially longer than a term of 30 years or less. Additionally, permanent life insurance policies have a built-in cash value feature, which term life insurance policies lack. Plus, the insurer is obligated to give a payout in a permanent life policy provided your premiums are up to date and your policy is not subject to fraud. On the other hand, the insurer doesn’t need to make a payout when your term policy expires.
Length of Coverage
The term length of your life insurance policy will determine your monthly premium rate. Generally, the longer the term of the policy, the higher the premium rate. For example, you’ll pay a higher premium for a 30-year term length than a 20-year term length. This is because longer coverage provides you with insurance for a longer period of your life. In the 30-year vs. 20-year policy example, the 30-year coverage insures you for 30 years of your life, which is significantly longer (and costlier to the carrier) than the 20-year option.
At the same time, a long policy means that the insurance company will provide coverage even in your older years when you’re likely to be prone to illnesses and possibly death. Because the risk of death (and thus the chances of your insurer having to pay your beneficiaries) increases as you age, the insurer will increase the premium rate to ensure that your premium contribution matches the lump sum amount in your policy.
Say you’re 30 years old and are debating between a 10-year and 30-year term life insurance policy. If you take the 10-year policy, it will lapse when you’re 40 years old. Most people are generally alive and in excellent health at that age. On the other hand, a 30-year policy will cover you until you reach 60 when the risk of illness and death is higher. Premiums for whole life policies are even higher because these policies provide coverage for your entire life.
How much does whole life insurance cost and how much does term life insurance cost? Here’s a comparison of monthly premiums for a healthy, non-smoking, 30-year-old male considering a 10-year, 20-year, 30-year or whole life insurance policy that provides a coverage amount of $500,000.
| Term Length | Monthly Premium |
|---|---|
| 10 YEARS | $16 |
| 20 years | $20 |
| 30 years | $29 |
| Whole life | $205 |
Lifestyle and Habits
Life insurance companies often charge higher premiums if your lifestyle includes risky hobbies like climbing mountains, riding bikes, racing cars, and scuba diving. The same is true if you use nicotine products. Alongside cigarette smoking, using smokeless tobacco, e-cigarettes, vape pens, nicotine patches and chewable tobacco will push your life insurance premiums upwards. While each insurance company has its own marijuana policy, frequent use is also likely to increase your cost of life insurance.
Beyond lifestyle, your life insurance may have higher rates if your occupation features high-risk activities like flying a plane, mining or policing. Similarly, expect higher premium rates if you have a checkered driving record that has a history of DUI and traffic-related convictions. The same is true for a criminal record and a recent bankruptcy.
Average Monthly Cost Estimates for a $500,000 Life Insurance Policy
How much should life insurance cost? While the monthly costs of life insurance coverage are not based on a one-size-fits-all approach, the average 30-year-old non-smoker pays $15 for a 10-year term, $19.10 for a 20-year term for a 30-year term. Permanent coverage is more expensive and costs $192.67 per month for a 30-year-old non-. That said, these are averages based on a 30-year-old. They may vary greatly depending on factors like your actual age and the type of policy you choose.
Term Life Insurance Rates by Age
| TERM LENGTH AND ESTIMATED COST OF MONTHLY PREMIUMS | |||||
|---|---|---|---|---|---|
| Age | Gender | 10-YR | 15-YR | 20-YR | 30-YR |
| 20 | Male | $16.40 | $17.20 | $19.80 | $28.00 |
| Female | $13.40 | $13.80 | $17.00 | $22.60 | |
| 30 | Male | $16.40 | $17.40 | $20.40 | $29.00 |
| Female | $13.60 | $14.40 | $17.80 | $25.20 | |
| 40 | Male | $21.40 | $24.00 | $30.00 | $48.00 |
| Female | $17.80 | $21.20 | $25.40 | $38.60 | |
| 50 | Male | $40.80 | $49.20 | $64.40 | $115.40 |
| Female | $34.80 | $42.20 | $51.60 | $87.60 | |
| 60 | Male | $102.20 | $135.00 | $189.60 | N/A |
| Female | $70.60 | $88.40 | $128.20 | N/A | |
| 70 | Male | $298.00 | $414.75 | $471.00 | N/A |
| Female | $213.25 | $301.50 | $358.50 | N/A | |
*Rates are based on a $500,000 life insurance policy for a healthy customer who is a non-smoker.
Premiums increase with advancing age for males and females alike. The reason behind this is because the older you grow the closer you get to your life expectancy, which increases the risk of your insurance company having to pay out a death benefit. While you can use the above chart as a general guide, keep in mind that the actual rate you’ll get depends on the insurance company you choose. For example, Fidelity Life’s RAPIDecision® Quick Term Life Insurance starts at $24.58 for a 30-year-old female in good health for up to $250K for a 30 year term. This is lower than the market average in the above chart.
Similarly, while many companies don’t have 30-year term policies for seniors, Fidelity Life offers coverage to older generations through the RAPIDecision® Senior Life Term. This policy is available for seniors up to 70 years old.
Comparison between Term and Permanent Policies by Age
| Face Amount: $500,000 | ||||||
|---|---|---|---|---|---|---|
| Age | Gender | Term Policy Rate | Whole Life Policy Rate | |||
| 20 | Male | $20.35 | $145.00 | |||
| Female | $16.70 | $129.30 | ||||
| 30 | Male | $20.80 | $205.00 | |||
| Female | $17.75 | $180.30 | ||||
| 40 | Male | $30.85 | $295.00 | |||
| Female | $25.75 | $265.75 | ||||
| 50 | Male | $67.45 | $449.00 | |||
| Female | $54.05 | $389.70 | ||||
| 60 | Male | $142.27 | $710.70 | |||
| Female | $95.73 | $580.00 | ||||
| 70 | Male | $394.58 | $1,290.30 | |||
| Female | $291.08 | $1,065.50 | ||||
*Rates are based on a $500,000 life insurance policy for a healthy customer who is a non-smoker.
Whole life premiums are higher than term life premiums because whole life insurance policies provide coverage for your entire life. They also accumulate cash value, which offers more security compared to term life policies. On the other hand, term life policies are generally cheaper and provide coverage for a specific period of time. This can be advantageous if you’re interested in a policy that will only cover you for a certain duration.
While many buyers generally prefer the 20-year term life insurance policy, there are multiple term length options to choose from depending on the insurance provider you select. With Fidelity Life, you can choose between 10-year, 15-year, 20-year, and 30-year terms.
Sample Scenarios
Assume there are two coworkers, Jane and John, both of whom are seeking a $500,000 life insurance policy. Say Jane is a 30-year-old female who doesn’t smoke while John is 60 years old and also doesn’t smoke. Both are in good health despite their considerable age difference. In this case, their biggest distinguishing factor is age.
For most providers, John won’t even qualify for a 30-year term life insurance policy because of his advanced age. Of course, Fidelity Life is an exception to this because it has the RAPIDecision® Senior Life Term which is specially designed for people who are between 50 and 70 years old.
Jane’s premiums are significantly lower than John’s because she is rated at a lower risk. There are two main reasons behind this:
- Gender: women generally pay less for life insurance because statistically they have a longer average life expectancy than men.
- Age: Jane’s younger age means that she’s farther away from reaching her life expectancy age compared to John. John poses a higher risk (to the insurer) of having to get a death benefit.
If we assume that Jane and John are both smokers, their rates would change based on this lifestyle factor. Again, most life insurance companies don’t offer 30-year term policies to seniors.
The huge bump in premiums is because smokers are likely to experience ongoing health issues which may result in a shorter lifespan compared to non-smokers. As such, they are riskier to insure. The same is true for people with an overall poor health, but the increment in premiums wouldn’t be as big as for smokers.
If our two hypothetical colleagues were non-smokers but had a
Quotes from Insurance Providers or Online Calculators
The charts above provide ballpark average monthly costs for life insurance coverage based on different age groups. If you are, in fact, shopping for insurance coverage, you’ll want to find out the exact amount of monthly premium that you’ll pay based on your personal profile. A good place to start is requesting and comparing life insurance quotes from major, reputable insurance providers. Fidelity Life has a straightforward online tool for generating instant life insurance quotes.
Make sure to select a handful of other life insurance companies and compare their offerings, premium payment modes, claims settlement ratio, financial strength rating, renewal policies, and any other terms and conditions. While you can always contact each company directly, many of them allow you to get instant life insurance quotes online through their websites.
Tips for Lowering Life Insurance Premiums
Since life insurance is an investment that involves your loved ones, it’s important to do it in a smart way. This involves saving costs by keeping your premiums low. Some of the things that you can do to lower your life insurance premiums include maintaining a healthy lifestyle, choosing the right type and length of policy, and shopping around for competitive rates.
Maintaining a Healthy Lifestyle
If you are in excellent health, your life insurance provider will perceive you as a low-risk person because you’ll have a longer life expectancy. This typically leads to lower premium rates. You can maintain a healthy lifestyle by exercising regularly, eating a healthy diet, avoiding tobacco products, and steering clear of drinking excessive amounts of alcohol .
Choosing the Right Policy Type and Length
The type and term length of your policy will play a big role in determining premiums. Generally, the longer the term, the higher the monthly cost of premiums. That’s why term life insurance is cheaper than whole life insurance. At the same time, a 10-year term life policy is cheaper than a 15-year policy, which in turn is cheaper than a 20- or 30-year policy.
Similarly, a term life insurance policy is cheaper than a whole life insurance policy. If your primary goal is to protect your family during a particular period – say 20 or 30 years of your employment period – choosing a term policy can help you lower your average monthly cost. On the other hand, a whole life policy can protect you for your entire lifetime. Therefore, make sure the policy you choose matches your individual goals.
Shopping Around for Competitive Rates
One way of keeping your average monthly cost of life insurance low is shopping around for competitive premium rates. Compare instant life insurance quotes from multiple companies. Prices tend to vary from one provider to another even for the same coverage. Besides, some companies have discounts and other price-based incentives that can lower your premium rate.
Fidelity Life’s licensed insurance agents can help answer your questions about life insurance and help you find coverage that fits your budget and needs. Call 1-844-569-3771 today for more information and to get a free quote.
