Life insurance is a complicated product, and people are not really sure what affects their policy and prices. Does the place you live affect your life insurance policy? What about living in a home or apartment, or a city or suburb, does that affect the price you pay? Do the demographics of your neighborhood matter? What about if you move, does your price of life insurance change? The short answer to all these questions is no. Your location, your type of residence, the demographics of your neighborhood, and even your income has absolutely no impact on the price of your policy.
Why Doesn’t Location Affect Price?
It may seem logical that location would affect life insurance premiums. Different areas have different risks. Urban areas carry more pollution, while rural areas have higher levels of obesity. Severe storms impact some parts of the country, and the north can have devastating snowstorms. Why doesn’t this affect price?
The answer is that health is a much stronger predictor of mortality. While life insurance companies work to classify their risk, which is the risk of their customers dying, it would not be economically reasonable to take location into account. Life insurance premiums do not change in most policies after the policy is issued. Term life is usually guaranteed at a level premium, and whole life premiums are also level. Universal life insurance is complicated and premiums do rise as the insured person ages, but the life insurance company does not take changes in health into account, only age.
Simply put, it is much easier for life insurance companies to group every one of certain health statuses into one group, and price the policy accordingly. Taking location into account would add too much nuance to the pricing.
The only way that location will have an effect on price, is if there is a State-specific tax or law regarding more frequent premium payments. For instance, a life insurance company may charge slightly more if the policy owner chooses to pay monthly than they will if the owner pays annually. The difference may be tiny, but there will be a small admin fee for paying so frequently. Some states do not allow this additional admin fee to be charged by the insurance company though, so the price will be a little bit lower.
Does Location Affect Anything About Your Policy?
Each state has the right to regulate life insurance companies however they choose. They set rules for things like the grace period, the time a company has to payout, the amount of time in the “free look” period, and for how much money they guarantee a life insurance policy for if the insurance company defaults. Most states have very similar laws and protections in place, but the specifics can differ a bit between each state. See our state by state look at these laws in our state guide here.
States can also have different laws about important things like Medicaid estate recovery. This can affect whether the state has the right to claw back your life insurance payout after death, in order to pay back Medicaid for expenses. Estate recovery by medicare can have a big effect on your beneficiaries. In general, if you have named beneficiaries Medicaid can not recover the death benefit because the life insurance payout bypasses the estate.
Life insurance companies also do look at your driving record. People’s driving records are generally within their control, but the place that they live can affect it. You can be more likely to get picked up for speeding in a rural area, and more likely to have minor accidents in a very urban area. In order to keep your risk classification down, try to keep a clean driving record. Most life insurance companies are going to weight your driving record in the last 5 years as most impactful. Older infractions are not as important.
While your location does not have a direct impact on the price of your policy or the health rating that a life insurance company assigns to you, being obese will have a BIG impact on price. Different parts of the country have different rates of obesity and the complications and diseases that come along with obesity. If your body mass index (BMI) is above 30, you should consider
losing weight in order to lower your premiums, and live a better life for longer!
There are also some additional nuances to life insurance regulation in each state, and travel is one of them. While health has the number one impact on the price of your life insurance, by far, other factors can play into the calculation. Things like the hobbies you partake in, whether or not you ever smoke a cigar, and how much travel you participate in and the places that you travel also have an effect. If you travel for business, especially internationally, you may be viewed as a higher risk. If you travel personally to exotic locations and participate in zip lining while there, you may be viewed as a higher risk. Some international locations also carry a higher risk of contracting an infectious disease, such as Africa with high rates of malaria.
Not every State allows life insurance companies to let travel affect their underwriting though. States that do not let travel affect pricing include:
- New York
The state that you live in can affect the beneficiary that you choose. In general, you are allowed to choose whoever you want as a beneficiary. Some states have rules requiring your spouse to sign a waiver if they are not named as the primary beneficiary. These are the community property states, and life insurance is considered property subject to community property laws. The states with community property laws include Wisconsin, Louisiana, New Mexico, Washington, Nevada, California, Texas, Arizona, Idaho and Alaska.
Your beneficiary choice can also be affected by how your state treats minors, who are under 18. Alabama, Nebraska, actually requires a person to be 19 to have attained the age of majority and Mississippi requires that someone be 21. If you leave your life insurance to a beneficiary who is under the age of majority, they may face difficulties receiving the money. They may need to wait to have access to the money, or the payout could get held up while the courts decide what to do with it. It is best practice to find a life insurance trust if you are intending the money goes to a child or beneficiary who is at the age of minority (minor).
The relationship between happiness and your health has been established by scientific studies. Some states have higher overall levels of happiness than others, and some people are more likely to be happy in certain environments than others. Some people like to be active by hiking, others skiing, and some surfing. Life in a place that makes you happy and healthy, and you are most likely to get the best rates on life insurance!