NEWS & ARTICLES

If you are looking for life insurance, you might be wondering how much it costs.  You may even have already received a quote, but you don’t know if its a good price or not.  If you have an older policy, you may wonder if prices have gone down or up since you bought it.  Here we tell you about what factors affect the cost of life insurance, and how different types of life insurance also cost different amounts.

Quick Answer

A 35 year old male, who does not smoke and is in very good health, will pay about $160 dollars a year for a 20 year term life insurance policy providing $200,000 in coverage.

The caveat to this is that there are many difference that can significantly affect the price of life insurance, depending upon the individual.  Some people may find life insurance for a little bit less money than this, and many will find it to be much more expensive.  If you are paying more than this for coverage, there is probably a good reason.

Factors Affecting the Price of Life Insurance

Here is a list of factors that can affect the price of a life insurance policy.  This is not necessarily all inclusive, but these are the things that most often affect the price.

  • The type of life insurance.
  • The amount of insurance purchased.
  • The age of the insured person.
  • The health of the insured person.
  • The gender of the insured person.
  • Whether or not the insured person smokes.
  • The length of the term policy (when applicable).
  • The company from which the insurance is purchased.

How the Type of Insurance Affects Price

Term life insurance is the least expensive type of policy.  Whole life is significantly more expensive than term is, but holds a cash value which can be withdrawn or taken out as a loan.  Variable universal life insurance or universal life insurance can either be more or less expensive than whole life, depending upon whether the policy is intended to build a big cash value or not.

Term is the least expensive type of policy because it is not permanent.  According to the odds (calculated by the insurance company on something called a mortality table), people are expected to outlive their insurance policy.  In fact, it is rare that someone dies when they are covered by a term policy.  The longer someone is covered by a term policy, the greater the risk that the insurance company needs to pay out a claim, so longer term policies are more expensive than shorter ones.

When someone buys whole life insurance the insurance company expects to pay a claim out because the policy is permanent.  The insured person is covered for their entire life.  While there is a cash value component to the policy, the premium payments are generally higher.  The goal for the insurance company is to make more money on premium payments (and their returns on the premium payments) than they pay out in claims.

Whole life is a big more complicated though, because of the dividend payments.  The owner can use the dividend payment to offset premiums, and the dividend will usually become bigger than the premium payment after a certain amount of time (such as 20 years).  This will be shown clearly on the illustration.  Make sure you study the illustration to understand how dividends reduce your out of pocket premium payments.d

Variable universal life insurance and universal life insurance are also permanent forms of coverage.  These may be less expensive than whole life because the owner is allowed to pay more cash into the policy in the early years.  If the rate of return is high enough, it will lesson the ultimate amount of premium payment required to keep the policy in force.  The policy also does not necessarily become fully funded, and owners are allowed to skip premium payments provided there is enough cash value in the policy from which to cover the cost of insurance.

Coverage Amount

The more coverage you have, the more money you will pay.  Generally, adding additional coverage is associated with a fairly linear increase in price.  A very small policy may be a little more expensive in terms of price per dollar of coverage because of administrative fees, but anything over $50,000 of face will generally rise in cost proportionally for each dollar of coverage added.  In other words, you could think of the cost of coverage in terms of “premium dollars per year/dollar of face coverage”.  This may be something like $2/$1,000, for instance, which would mean for each $1,000 of additional coverage, it costs the owner an extra $2 per year in premium.

Age

The younger the insured person is, the less expensive the policy price.  All else being equal, age can have a pretty significant affect on price.  When it comes to term life insurance, the odds of someone dying for any reason are dramatically less when they are younger.  If the policy only covers someone during their low risk years, the insurance can be very inexpensive.  For whole life policies, the insurance company is calculating the odds of the insured person passing away before the company breaks even in terms of dollars paid in vs dollars paid out in claims.  The earlier in life the policy is taken out, the more time to pay into the policy and allow the company to make their money.  This makes whole life policies taken out early in life drastically less expensive on an annual basis that policies taken out later in life.

Health

In the same way that age affects the odds that the insurance company will need to pay out a claim, health also has the same effect.  If the insured person is in poor health, they represent a much higher risk of dying than someone in good health.  This makes a policy much cheaper for people who have good health markers when they become insured.

Life insurance companies classify insured clients into health groups for the purposes of pricing a policy.  Common classifications include premium plus or preferred plus, preferred, and standard.  For clients in exceptionally poor health, a company may issue what is known as a substandard policy, which requires special underwriting and is quite expensive relative to better health ratings.

Gender

Females represent a lower risk of death than males, for any reason.  While this may sound like gender discrimination, the numbers don’t lie.  Because they live longer on average, females pay less than males for life insurance, all else being equal.

Tobacco Usage

Like nothing else in common usage, tobacco shortens lifespans.  If you have any doubts, the insurance companies have the mortality numbers.  If you smoke, you represent a much higher risk that the insurance company will need to pay a claim.  The bad news is they charge you a lot more money for this, but the good news is if you quit you can still get lower rates.  Some insurance companies will even allow people to apply for a reclassification after the policy is issued with the corresponding price decrease.

Company You Buy From

There is no “cheapest company”, but certain products may be less expensive from one company, and other products can be the least expensive from another company.  Each company prices policies differently for clients of different ages, genders, health classes, and policy types.  There is no one sized fits all pricing model and every client represents an individual risk that needs to be evaluated.

One company may even issue the same client one health rating, and another company could underwrite the same client differently and classify them into a different health class.

Because pricing can vary from product type to product type and different companies evaluate risk differently, you really need to compare quotes and shop from at least a few companies before you make a purchasing decision.

If you purchase whole life insurance, the dividend rate may also vary widely between companies.  Dividends can be used to offset premiums, so even a higher premium policy may be offset to become cheapest from a high dividend paying company.  Make sure you fully understand your illustration before you decide which policy to buy.  While companies try to make them easy to understand, the illustration can be a little bit complex looking to people who have no background in life insurance.

By law, the insurance company needs to make sure that their clients understand what they are buying and fully agree to the premium, and all the terms of the contract.

What is the Price Range?

As you may be able to tell, prices vary widely depending on all of the different factors listed above.  A price range is difficult to quantify reasonably because it is so wide.  If you are purchasing term life insurance, you may pay between $.50/$1,000 (annual premium/face), and $100/$1,000 on the higher end.

For whole life, the bottom end of the range is more expensive, but the top end is similar.  For an inexpensive whole life policy for a young person, the price may be something like $15/$1,000, while a higher premium policy may be in the same $100/$1,000.  Keep in mind that whole life dividends will usually eventually be high enough to cover the premium payment fully, so if dividends are used to offset premiums the price drops over time.

How to Get the Best Price

If you want to keep your life insurance prices low, you do have some control.  First off, don’t buy more coverage than you need.  By calculating your exact need, you can make sure you aren’t paying for superfluous coverage.  Secondly, do what you can to control your health.  Don’t smoke tobacco, keep your weight low, and make sure you take any medications subscribed to you by your doctor.  If you have high blood pressure or cholesterol, make sure you see a doctor and keep it under control.

Make sure that you shop companies and compare prices.  You are in the right place because Life Ant specializes in quote comparisons.