Factors Affecting Life Insurance Rates: Understanding The Basics

Life insurance rates vary depending on a number of factors, including age, gender, health, and lifestyle choices. The younger and healthier you are, the lower your premium is likely to be, as there is less risk of the insurance company having to pay out. The type of policy and length of coverage will also affect the rate. Term life insurance, which covers a set number of years, is generally cheaper than permanent life insurance, which lasts a lifetime and often includes a cash value component. For example, a 30-year-old non-smoking woman in excellent health can expect to pay an average of $186 a year for a 20-year, $500,000 term life insurance policy, while a man of the same age and health status can expect to pay around $220 a year. Life insurance rates can also be influenced by factors such as family medical history, occupation, and hobbies. It is important to shop around and compare quotes from multiple insurers to find the best rate for your needs.

How age affects life insurance rates

Age is one of the most influential factors affecting life insurance premiums. Insurers assess premiums based on multiple personal factors, but an emphasis is placed on mortality risk, and the probability of death rises steadily as people get older.

The older you are when you purchase a policy, the more expensive the premiums will be. This is because the cost of life insurance is based on actuarial life tables that assign a likelihood of dying while the policy is in force. The older you are, the more likely that day is to come.

In general, the younger and healthier you are, the cheaper your premiums. Typically, the premium amount increases by about 8% to 10% for every year of age. It can be as low as 5% annually if you're in your 40s, and as high as 12% annually if you're over 50.

With term life insurance, your premium is established when you buy a policy and remains the same every year. With some permanent life insurance policies, the premium rises annually.

Age also affects whether a person will qualify for life insurance coverage at all, with qualifying medical exams getting increasingly stringent. Most carriers only offer 20-year term policies to those aged 18 to 70. After that, you can't get a term that lengthy.

The reason is that the older you are, the more likely you are to become ill or die while under coverage. Insurers view older people as a higher risk, and so charge more to offset that risk.

Young adults are often in good health and may only need a minimum amount of coverage, which might translate to lower rates. Many individuals will find that a term life insurance policy offers adequate coverage for their needs and budget.

As people age, they often benefit from a term life insurance policy that is in effect until they hit retirement. For instance, instead of purchasing a 30-year policy, a middle-aged adult might purchase a 10-year policy if they're only a decade out from retiring.

Older adults might have a harder time purchasing life insurance. Many insurers stop issuing new life insurance policies to seniors over a certain age, usually around 80. Life insurance for seniors can often be cost-prohibitive depending on their health and the type of coverage they qualify for.

Gender and life insurance rates

Life insurance rates for men and women differ because of the difference in their average life expectancies. Women have a longer life expectancy than men, so they pay less for life insurance. Women pay on average 24% less for life insurance than men. The average life expectancy in the US is 79.3 years for women and 73.5 years for men.

However, gender is just one factor that insurance companies take into account when determining life insurance rates. Other factors include age, health, family medical history, smoking status, occupation, and lifestyle.

In the US, insurance companies use actuarial tables to assess insurance risk and determine rates. These tables use historical data to determine someone's chances of dying. While more recent research suggests that life expectancy by gender may be more nuanced, there isn't currently enough data to change existing insurer guidelines.

It's worth noting that life insurance rates for transgender or non-binary applicants may be affected by the application process, but their rates should not be higher based on gender identity. Most insurers do not currently offer a gender-neutral option on their life insurance applications.

Health and life insurance rates

Life insurance rates are influenced by factors such as age, gender, health, and lifestyle choices. Generally, younger and healthier individuals with fewer risky hobbies or occupations will pay lower premiums. The cost of life insurance also depends on the type of policy chosen, such as term or permanent life insurance, and the coverage amount. On average, the cost of life insurance is $26 per month for a 40-year-old purchasing a 20-year, $500,000 term life policy. However, rates can vary significantly based on individual circumstances and the insurance provider.

Lifestyle choices and life insurance rates

When applying for individual life insurance, you will be asked detailed questions about your medical history and lifestyle choices. Insurance companies use this information to assess your overall health and determine your insurance rates. While some factors, such as age and gender, are beyond your control, there are lifestyle choices that can influence your premium. Here are some factors that can impact your life insurance rates:

Smoking Status

Smokers pay higher premiums than non-smokers. Insurance companies view smoking as a high-risk activity due to the associated health issues, such as respiratory disease and cancer. Even occasional smokers or those who use smokeless tobacco may be classified as smokers and charged higher rates. However, quitting smoking for a specified period can help lower your premium.

High-Risk Activities

Participation in high-risk activities or hobbies, such as mountain climbing, horseback riding, motorcycle riding, aviation, skydiving, or racing, can result in higher premiums. Insurance companies typically charge more if they perceive an increased risk of injury or death from these activities. Reducing or avoiding such activities may help lower your life insurance costs.

Health and Weight

Maintaining a healthy weight and practicing good health habits can positively impact your insurance rates. Insurers consider height, weight, and medical history when determining premiums. Pre-existing medical conditions, such as diabetes, heart disease, or high blood pressure, may result in higher rates. Managing these conditions and following treatment plans can help mitigate their impact on your premium.

Driving Record

A clean driving record is essential for obtaining lower life insurance rates. DUIs, DWIs, and major traffic violations are red flags for insurance companies, who may view them as indicators of high-risk behaviour. Consequently, they may charge higher premiums or even deny coverage in some cases.

Occupation and Lifestyle

Your occupation and lifestyle choices can also affect your life insurance rates. If you work in a hazardous or high-risk job, such as construction or law enforcement, you may be subject to higher premiums. Similarly, if your hobbies include risky activities, insurers may consider you a higher risk. Maintaining a safe and healthy lifestyle can help offset these factors.

While some of these factors may be challenging to change, understanding their impact on your life insurance rates can help you make informed decisions about your health and lifestyle choices. Leading a healthy and safe life can not only improve your overall well-being but also potentially lower your insurance costs.

Policy type and life insurance rates

Life insurance rates are influenced by several factors, including age, gender, health, and lifestyle choices. The type of policy you choose also plays a significant role in determining the cost of life insurance. Here's a detailed look at how policy types impact life insurance rates:

Term Life Insurance:

Term life insurance is the most affordable option as it offers coverage for a specific number of years, typically ranging from 10 to 30 years. The premiums for term life insurance are lower than permanent insurance, especially at younger ages. The rates for term life insurance policies are locked in for the specified term, but they increase as you grow older. Additionally, term life insurance does not build cash value, and if you outlive the policy, there is no payout.

Permanent Life Insurance:

Permanent life insurance, also known as whole life insurance, is designed to provide coverage for your entire lifetime. It includes a cash value component that allows you to borrow against the policy or withdraw funds later in life. Due to the longer coverage period and the cash value feature, permanent life insurance policies are significantly more expensive than term life insurance. The premiums for permanent life insurance are higher from the outset to build a reserve that helps pay for the policy in later years.

Convertible Term Policies:

Some term life insurance policies offer a conversion feature, allowing you to exchange the term policy for a permanent plan during a specified conversion period. The premium rate after conversion is usually based on your current age, and you won't need to provide information about your health. This type of policy provides maximum protection with a smaller initial cash outlay.

Level or Decreasing Term:

Level term policies offer a fixed death benefit throughout the policy term, while decreasing term policies have a face amount that reduces over time, even as the premiums remain the same. Decreasing term policies are often sold as mortgage protection, with the insurance amount decreasing as the mortgage balance decreases.

Adjustable Premium:

Adjustable premium policies allow insurers to offer lower initial premiums based on current assumptions about interest rates, mortality rates, and expenses. However, insurers have the right to change these premiums in the future, but they cannot exceed the maximum guaranteed premium stated in the policy.

Guaranteed Life Insurance:

Guaranteed life insurance policies do not require a medical exam and are often the only option available to seniors. These policies tend to be very expensive, with low coverage limits, usually designed to cover end-of-life expenses. The death benefit is typically graded over the first two to three years of the policy.

When choosing a life insurance policy, it's important to consider your age, health, financial obligations, and the length of coverage you need. Term life insurance is suitable for those seeking affordable coverage for a specific period, while permanent life insurance offers lifelong protection with a cash value component but at a higher cost. Additionally, certain policies provide flexibility, such as convertible term policies and adjustable premium options.

Frequently asked questions