Group Term Life Insurance: Age-Related Changes Explained

Life insurance is a financial product that pays out a death benefit to the beneficiary chosen by the insured person when they pass away. There are two main types of life insurance: term life insurance and permanent life insurance. Term life insurance is a temporary policy that provides a death benefit payout if the insured person passes away before the policy expires. Permanent life insurance, on the other hand, lasts for the entire lifetime of the insured person. Group term life insurance is a type of temporary life insurance that covers multiple people under one contract, typically offered by employers to their employees as a benefit. While group term life insurance is relatively inexpensive and has high participation rates, it may not provide sufficient coverage for all families, and the coverage usually ends when employment terminates. The standard amount of coverage is usually based on the insured person's annual salary, and premiums are primarily based on the insured person's age. As age is one of the most influential factors in determining life insurance premiums, this article will explore how group term life insurance changes with age.

Group term life insurance rates by age

Group term life insurance is a type of temporary life insurance in which one contract is issued to cover multiple people. The most common example is a company that offers coverage to its employees as a benefit. This type of insurance is relatively inexpensive compared to individual life insurance, and many employers provide basic group term life insurance at no cost to employees as part of their benefits package.

The standard amount of coverage is usually tied to the covered employee's annual salary, with premiums primarily based on the insured's age. While the cost of individual term life insurance policies remains the same every year, group term life insurance rates typically have rate bands in which the cost of insurance automatically goes up in increments (for example, at ages 30, 35, 40, etc.). The premiums for each rate band are outlined in the plan document provided by the employer.

Group term life insurance rates are influenced by the same factors that affect individual term life insurance rates. These include age, health, gender, lifestyle, and occupation. Age is a significant factor because the likelihood of a payout increases with age, as health issues become more frequent and the probability of death rises. Therefore, older policyholders will typically pay higher premiums for term life insurance than younger policyholders.

• The average monthly rate for life insurance is $22 for a 30-year-old, $32 for a 40-year-old, and $80 for a 50-year-old.
• A 45-year-old male will pay on average $1,125 for a new, 20-year term policy with $1,000,000 of coverage. The same policy purchased at age 46 will cost $1,225, and at age 47, it will cost $1,345 per year.
• The average cost of life insurance is $31 per month at age 25, but it increases to about $593 per month at age 65.

Coverage limits and premiums

Group term life insurance is a type of temporary life insurance in which one contract is issued to cover multiple people. The most common example is a company that offers coverage to its employees as a benefit. This type of insurance is relatively inexpensive compared to individual life insurance, and participation is high. Many employers provide basic group term life insurance at no cost to employees as part of a benefits package.

The standard amount of coverage is usually tied to the covered employee's annual salary, with premiums primarily based on the insured's age. Employers typically pay most or all of the premiums for basic coverage. Additional amounts, ordinarily in multiples of the employee's annual salary, may be offered for an extra premium paid by the employee.

Group term life insurance is usually inexpensive, especially for younger people. Participants are not normally required to go through an underwriting process, as all eligible employees are automatically covered. However, unlike individual term insurance plans, which typically lock in a rate for 20 to 30 years, most group plans have rate bands in which the cost of insurance automatically goes up in increments (for example, at ages 30, 35, 40, etc.). The premiums for each rate band are outlined in the plan document provided by the employer.

While group term life insurance is inexpensive, the amount of coverage offered may not be enough for many families. Employers or association groups offering the insurance often limit the total coverage available to employees or members based on factors such as tenure, base salary, number of dependents, and employment status. Participants cannot customise group term coverage to meet individual needs as they could with their own policy.

Group term life insurance rates are based on several factors, including age, medical history, gender, coverage goals, and harmful habits.

Age

Since younger policyholders have a longer life expectancy, they typically pay lower premiums for term life insurance than older policyholders.

Medical History

Many insurers require you to take a medical exam to get term life insurance. You may have to pay higher premiums if you have health issues such as diabetes, heart disease, or high blood pressure.

Family's Medical History

Your family's medical history can impact what you'll pay in premiums. When applying for term life insurance, your insurer may ask if your family has a history of serious illnesses or diseases, such as cancer.

Gender

Since women have a longer life expectancy than men, women typically pay less for life insurance.

Coverage

The type of coverage you get can affect the premiums you'll pay. If you get a term life policy with $1 million of coverage, for example, you'll pay more in premiums than you would for a $500,000 policy.

Smoking

If you're a smoker, you may pay more for term life insurance due to being at a higher risk for health issues.

Lifestyle and Occupation

People who have high-risk jobs, such as construction workers, or participate in hazardous hobbies, such as skydiving, may pay more in term life insurance premiums.

Health and medical history

When applying for group term life insurance, you will be required to provide detailed information about your health and medical history. This is because insurers want to build a picture of your health and the likelihood of you suffering from certain conditions. This information will then be used to determine the cost of your premiums.

Insurers will ask about any relevant medical conditions, and it is important to be honest on the application form. If you don't declare medical conditions and it is later discovered that you were aware of them when you applied, the insurer could refuse to pay out.

Insurers will also be interested in your family's medical history to establish the likelihood of you suffering from inherited conditions in the future. They will typically ask about issues endured by close family members, including biological parents and siblings. Some companies will also evaluate the health history of grandparents, aunts, and uncles.

The specific conditions that insurers look out for vary, but generally include a family history of cancer, heart disease, kidney disease, diabetes, motor neurone disease, and Huntington's disease. If a family member suffered from one of these conditions, insurers will want to know their relation to you, their age at diagnosis, their current age (or age at death), and the severity of their condition.

While your personal health profile is considered a bigger factor in determining the cost of your premiums, a family history of certain illnesses may result in higher premiums. This is because insurers use your family's medical history as an indicator of your future health risks.

In addition to your medical history, other factors that influence your life insurance premiums include your age, gender, lifestyle choices (such as smoking or drinking alcohol), and participation in risky hobbies or jobs.

Gender and life expectancy

Life insurance rates are influenced by a number of factors, including age, health, lifestyle, and gender. While men and women can both be affected by changes in insurance rates over time, women tend to live longer than men, which is reflected in their insurance premiums. This difference in life expectancy, or longevity gap, is currently around 5–7 years globally, with women having a higher life expectancy than men.

There are several reasons why women tend to outlive men. Firstly, infant death rates are higher among boys than girls due to a higher probability of premature birth and higher death rates in the first week of life. Boys are also more susceptible to certain genetic disorders and infectious diseases due to their single X chromosome and less developed immune system. Secondly, youth death rates are higher among men due to accidents, violence, suicides, poisonings, and other external causes. Men are more likely to engage in high-risk activities and have more dangerous jobs, such as military combat and construction work. Thirdly, as people age, death rates increase due to various diseases, and men tend to have higher prevalence rates and death rates from chronic conditions. This is partly due to gender differences in health behaviours, such as smoking, alcohol consumption, and drug use, which become more consequential with age. Additionally, men are more likely to avoid seeking medical care and may be less socially connected, which can contribute to higher death rates.

The longevity gap has varied over time and differs across countries. For example, in some countries like Russia, Belarus, and Ukraine, the gap can be over 10 years, while in Nigeria, it is less than 2 years. Historical data shows that the gap widened during major wars, with many young men dying in combat. In recent years, the gap has been influenced by the COVID-19 pandemic, with higher COVID-19 mortality rates among men, and a growing number of drug overdoses.

While the longevity gap between men and women exists, it is important to note that individual risk factors, such as smoking, diabetes, or family medical history, can outweigh the general tendency for women to live longer. Life insurance companies use actuarial tables to estimate life expectancy and set rates accordingly, taking into account various factors beyond gender.

Lifestyle and occupation

A person's lifestyle and occupation are significant factors that influence their life insurance premiums. Insurers assess an individual's lifestyle choices and occupation to determine their mortality risk, and the probability of death increases with age.

Lifestyle

Lifestyle factors such as smoking, pre-existing medical conditions, obesity, and participation in risky hobbies or activities can significantly impact life insurance premiums. For instance, an individual who engages in skydiving or rock climbing may have higher insurance rates than someone who doesn't participate in such activities. Additionally, driving history, criminal records, and dangerous occupations are also taken into account when determining premiums.

Occupation

A person's occupation can also affect their life insurance rates. Occupations that are considered high-risk, such as mining, fishing, logging, and those that require extensive travel or long hours on the road, often result in higher premiums. This is because these jobs are associated with a higher risk of sudden or premature death. On the other hand, individuals with low-risk occupations, such as financial analysts or office workers, typically pay lower premiums.

It's important to note that while lifestyle and occupation can impact life insurance rates, other factors such as age, gender, and overall health also play a significant role in determining premiums.

Frequently asked questions