Life Insurance: Can You Afford To Rate Us?

Life insurance is a financial safety net for your loved ones after you pass away. It's a contract between the policyholder and the insurance company, where the former pays premiums and the latter pays a fixed amount, called a death benefit, to the policy beneficiaries after the insured person's death. The death benefit is usually distributed in a lump sum.

The cost of life insurance varies based on factors such as age, gender, health, lifestyle choices, and the type and amount of coverage. The average cost of life insurance is $26 a month, but this can range from $12 to $40 a month for a 20-year, $250,000 term life insurance policy, depending on age and gender.

Term life insurance is the most affordable and common type, with premiums as low as $26 per month. It covers the insured for a specific period, after which it expires. Permanent life insurance, including whole life and universal life insurance, is more expensive as it lasts a lifetime and includes a cash value component.

How is the cost of life insurance determined?

The cost of life insurance is determined by a variety of factors, including:

Mortality and Interest

The premium rate for a life insurance policy is based on two underlying concepts: mortality and interest. Mortality tables are used to give the insurance company a basic estimate of how much money it will need to pay for death claims each year. By using these tables, insurers can determine the average life expectancy for each age group. The younger you are, the less you will pay for life insurance. This is because, as you age, your life expectancy decreases, and the likelihood of your insurer having to pay out increases.

Interest Earnings

The second factor used in calculating the premium is interest earnings. Companies invest your premiums in bonds, stocks, mortgages, real estate, etc., and assume they will earn a certain rate of interest on these invested funds.

Operating Costs

The third consideration is the expenses of operating the company, including salaries, agents' compensation, rent, legal fees, postage, etc. The amount charged to cover each policy's share of these expenses is called the expense loading and can vary from company to company.

Policy Type

The type of policy you choose also affects the cost. Term life insurance is generally cheaper than permanent life insurance because it only covers the insured for a specific period and does not build cash value. Permanent life insurance typically lasts a lifetime and includes a cash value component, making it a riskier investment for the insurer and therefore more expensive.

Death Benefit Amount

The death benefit amount also influences the cost of life insurance. Larger coverage amounts typically lead to higher premiums because they provide more financial protection.

Riders

Enhancing your policy with riders, such as critical illness coverage or accidental death benefit, offers additional protection but increases your premium.

Personal Factors

In addition to these factors, personal factors such as age, gender, health, tobacco use, family history, lifestyle, and occupation can also affect the cost of life insurance. For example, women tend to have lower life insurance costs than men because they have a longer life expectancy. Similarly, smokers typically pay higher premiums due to the increased health risks associated with smoking. High-risk jobs or hobbies can also lead to higher insurance costs.

What are the cheapest life insurance companies?

The cost of life insurance depends on several factors, including age, gender, health, and lifestyle choices. Generally, the younger and healthier you are, the lower your premiums will be.

• Nationwide: According to US News, a 20-year term life policy for a 35-year-old non-smoker with $1 million in coverage from Nationwide is almost $14 cheaper per month than their second cheapest company.
• Pacific Life: This company offers term and universal life insurance policies. Their term life insurance policies can be converted to permanent life policies without an additional medical exam.
• State Farm: State Farm offers both term and permanent life insurance policies, including whole and universal coverage options. They also offer a guaranteed issue final expense policy, which does not require a medical exam and cannot be denied coverage.
• Guardian Life: Guardian Life offers term, whole, and universal policies. Customers can get quotes and apply online for term policies, but not for permanent ones.
• Protective: Protective offers term life policies of up to 40 years, which is longer than most companies. They also allow for the conversion of term policies to permanent coverage without an additional medical exam.
• Ladder Life: Ladder Life offers term policies of up to $8 million in coverage, with policies up to $3 million not requiring a medical exam. They also have a unique "laddering" tool that allows policyholders to adjust their coverage as needed.
• Corebridge Financial: Corebridge offers flexible term life insurance policies with unique term lengths, such as an 18-year policy, which can be tailored to match specific financial milestones. They also offer whole and universal life insurance plans.
• Mutual of Omaha: Mutual of Omaha offers guaranteed issue whole life insurance for individuals aged 45 to 85 (50 to 75 in New York), with coverage amounts ranging from $2,000 to $25,000. Their policies do not require a medical exam or health questions.
• Symetra: Symetra offers low term life insurance rates and has an excellent AM Best rating. However, they lack a long track record of financial strength compared to other insurers.

What are the different types of life insurance?

There are five main types of life insurance: term life insurance, whole life insurance, universal life insurance, variable life insurance, and final expense life insurance. Each type of life insurance is designed to fill specific coverage needs.

Term life insurance is the least expensive type because it lasts a set number of years and simply offers coverage without building cash value. It is geared toward those who just need coverage for a certain number of years.

Whole life insurance is a type of permanent life insurance that provides coverage for your entire lifetime, paying your benefit no matter when you pass away — as long as you keep paying your bill. It is designed for those who need straightforward, lifelong coverage. Whole life insurance also includes a savings component that a portion of your premium will pay into. The savings component has a fixed interest rate that builds cash value over time, which is part of the reason whole life policies typically cost more than term life policies with similar coverage.

Universal life insurance is another permanent life insurance option, providing coverage for your entire life as long as you pay the premiums. It's sometimes called adjustable life insurance because it offers more flexibility than a whole life policy. For example, universal life policies allow you to increase or decrease your death benefit and even adjust or skip your monthly premium (within certain limits). As with whole life, a universal life policy has a savings component that grows and allows for borrowing.

Variable life insurance is a riskier type of permanent life insurance. It is tied to investment accounts, such as bonds and mutual funds, and the cash value can be part of your death benefit. The greater range of investment options offered by a variable life policy means it could provide a greater benefit to your beneficiaries when you pass away — especially if you're a savvy investor. But it also opens you up to much higher risk, fees, and costs than whole life or universal life policies.

Final expense life insurance, also known as funeral or burial insurance, is a type of whole life insurance that offers a smaller and more affordable death benefit designed to help cover your end-of-life expenses like funeral costs, medical bills, or outstanding debt. While other types of life insurance may have age and health requirements, final expense policies can be easier for older or less-healthy individuals to qualify for.

How can I lower my life insurance rates?

The cost of life insurance is determined by a variety of factors, including age, gender, health, and lifestyle choices. While some of these factors are beyond our control, there are several ways to lower your life insurance rates. Here are some strategies to consider:

Choose term life insurance

Term life insurance is significantly cheaper than permanent life insurance because it covers you for a specific period and does not build cash value. Permanent life insurance, on the other hand, lasts a lifetime and includes a cash value component, making it a more expensive option.

Buy life insurance early

The younger and healthier you are, the lower your life insurance rates will be. Buying life insurance early on can help lock in cheaper rates, as the average cost of life insurance increases by 4.5% to 9% every year.

Improve your health

Improving your health can lead to lower life insurance rates. If you have made significant health improvements since purchasing your policy, you may be eligible for reconsideration, where the insurer offers a better rate based on your new health status. This typically requires a new medical exam and at least one year of progress in your health records.

Lower the death benefit

Some insurance policies, such as universal life insurance, allow you to decrease the coverage amount in exchange for lower premiums. While this may reduce the financial protection for your beneficiaries, it can help make your premiums more affordable.

Pay premiums annually

Paying your life insurance premiums annually instead of monthly can sometimes result in savings of up to 5%. This option may not be feasible for everyone, but it can be a way to reduce costs if you have the financial means to pay a larger sum upfront.

Shop around and compare rates

Life insurance rates can vary significantly between insurers, so it is essential to shop around and compare quotes from multiple companies. A marketplace like Policygenius can help you find the best fit for your needs and ensure you get a competitive price.

Bundle your insurance

Consider purchasing multiple types of insurance, such as homeowners and auto insurance, from the same insurer. Many companies offer discounts for bundling or multiline insurance, which can help lower your overall insurance costs.

Improve your credit score

In some states, insurers consider credit scores when determining rates. Establishing a solid credit history and maintaining a good credit score can lead to lower insurance costs. This is because research shows that individuals with effective credit management tend to have fewer insurance claims.

Reduce coverage on older vehicles

If you have an older car, consider dropping comprehensive and collision coverage. The cost of repairing or replacing an older vehicle is typically lower, so you may not need the same level of insurance coverage. Review your coverage periodically to ensure it aligns with the value of your vehicle.

Choose a safer vehicle

Vehicles with advanced safety features and a good safety record may qualify for insurance discounts. When purchasing a new car, consider the cost of insurance and explore options that can help lower your premiums.

Maintain a good driving record

Insurers view individuals with a clean driving record as lower-risk. Avoiding traffic violations, driving safely, and maintaining a good driving record can positively impact your insurance rates.

Choose a safer occupation

Certain occupations are considered higher-risk by insurers due to the potential for injury or death. If you work in a hazardous job, such as law enforcement or construction, you may be paying higher life insurance rates.

Avoid risky hobbies

Participating in dangerous activities or extreme sports can increase your life insurance rates. Insurers consider the likelihood of injury or death when assessing your risk profile, so it's important to be mindful of how your hobbies and leisure activities may impact your rates.

What factors don't affect the cost of life insurance?

When it comes to life insurance, there are several factors that do not affect the premium. These include:

• Race and Ethnicity: Insurance companies are legally prohibited from considering race and ethnicity when determining life insurance rates. Race, religion, and national origin are among the "protected classes" for whom state and federal laws prohibit discrimination.
• Location: Your location within the US will not impact your life insurance premium. However, each state has its own rules regarding certain aspects of life insurance coverage, such as refund policies, late payment grace periods, and protections if your provider goes bankrupt.
• Credit Score: While your credit score won't directly affect your life insurance premium, major financial issues like bankruptcies and large credit card balances could impact your score, leading the insurance company to view you as a higher-risk applicant and potentially increase your rates.
• Marital Status: Unlike auto insurance companies, life insurance providers do not offer different rates for married individuals.
• Number of Policies: The number of life insurance policies you have does not affect your premium. However, you may need to justify purchasing large amounts of coverage across multiple policies.
• Number of Beneficiaries: Whether you name one or five beneficiaries on your life insurance policy, it will not impact your premium.

Frequently asked questions