How Much Life Insurance Cover Is Enough?

Life insurance is an agreement between you and an insurance company: you agree to pay premiums, and in return, the company agrees to pay a specific amount to your beneficiaries when you pass away. The average cost of life insurance is $26 a month, but this can vary depending on the type of insurance, coverage amount, and personal factors. Term life insurance is usually cheaper than permanent life insurance, and the cost also depends on your age, gender, health, and lifestyle choices such as smoking.

How age affects the average cost of life insurance

Age is one of the primary factors influencing your life insurance premium rate, whether you're seeking a term or permanent policy. The cost of life insurance is based on actuarial life tables that assign a likelihood of dying while the policy is in force—and, unfortunately, the older you are, the sooner that day is likely to come. The older you are when you purchase a policy, the more expensive the premiums will be.

The premium amount typically 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. The younger and healthier you are, the cheaper your premiums will be. This is because, as you age, your life expectancy decreases, and the likelihood of your insurer having to pay out your policy increases. That's why it's wise to buy life insurance as early as possible; the longer you wait, the more your rates will increase based solely on age.

The average cost of life insurance nearly doubles every decade you age, so those who put off getting coverage because they think it's too expensive might end up paying more because they take out a policy in their 60s. The average cost of a term policy for someone in their 30s is around $30 per month with good health. Costs increase significantly with age, and after 60, some term lengths are unavailable.

Term life insurance rates vary depending on the term and the amount of face-value coverage selected. The longer the term length, the higher your premiums will be. At the same time, the higher your coverage amount, the higher your premiums.

For example, 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 $1,345 a year if purchased at age 47.

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.

How gender affects the average cost of life insurance

The cost of life insurance is influenced by several factors, including age, gender, health, and lifestyle choices. While gender is not the only factor that affects the average cost of life insurance, it does play a significant role in determining premiums. Here's how gender affects the average cost of life insurance:

Life Expectancy

Statistically, women live longer than men. According to data from 2020, the life expectancy for women in the United States is around 80 years, while for men, it's approximately 74.5 years. This difference in life expectancy is a crucial factor in insurance rates. Since women are expected to live longer, insurance companies consider them a lower risk and, therefore, offer lower premiums. The likelihood of having to pay a death benefit is higher for men due to their shorter life expectancy, resulting in higher insurance rates.

Health Factors

Men and women face distinct health risks throughout their lives. Men are generally more susceptible to certain health conditions that can increase their mortality risk, such as heart disease and hypertension. Additionally, men are more likely to experience a heart attack at an earlier age than women. These health factors contribute to higher insurance rates for men.

Occupational Hazards

Men and women tend to work in different industries, with men more commonly pursuing careers in high-risk fields like construction, mining, or logging. These occupations present a greater risk of accidents and fatalities, which is reflected in higher insurance rates for men.

Lifestyle Choices

Men and women often exhibit different lifestyle habits that can impact their health and life expectancy. Men are more prone to engaging in risky behaviours, such as smoking, heavy alcohol consumption, drug use, and participating in extreme sports. These lifestyle choices can increase their likelihood of passing away prematurely, resulting in higher insurance premiums.

In summary, while other factors like age, health, and lifestyle choices also play a significant role in determining life insurance rates, gender is a key factor that influences the average cost. Men generally pay higher premiums due to their shorter life expectancy and higher-risk health and lifestyle factors. However, it's important to note that shopping around and managing health and lifestyle risks can help mitigate some of the gender differences in insurance rates.

How health affects the average cost of life insurance

The average cost of life insurance is $26 a month. This is based on data provided by Covr Financial Technologies for a 40-year-old buying a 20-year, $500,000 term life policy, which is the most common term length and amount sold. However, life insurance rates can vary dramatically depending on the health of the applicant, among other factors.

The healthier you are, the cheaper your life insurance premiums will be. Insurers typically classify applicants as super preferred, preferred, and standard, with super preferred being the healthiest category. Insurers then calculate premiums based on your risk class.

• Pre-existing conditions: Insurers will look at any pre-existing conditions you have, as well as your blood pressure and cholesterol levels.
• Tobacco use: Life insurance for smokers is significantly more expensive than for non-smokers due to the higher health risks associated with smoking.
• Height and weight: Insurers will take your height and weight into account when determining your premiums.
• Family medical history: If you have a family history of serious illnesses, such as cancer or heart disease, this may increase your premiums.
• Driving record: A history of DUIs, DWIs, or major traffic violations may result in higher life insurance rates.

Factors Unrelated to Health

In addition to health, there are several other factors that can affect the average cost of life insurance:

• Age: Younger people generally pay less for life insurance since they are considered lower risk.
• Gender: Women typically pay less than men of the same age and health due to their longer life expectancy.
• Occupation and lifestyle: High-risk jobs or hobbies can lead to higher insurance costs.
• Type of policy: Term life insurance is generally cheaper than permanent life insurance.

How lifestyle affects the average cost of life insurance

The average cost of life insurance is $26 a month, based on data for a 40-year-old buying a 20-year, $500,000 term life policy. However, this cost can vary depending on several factors, including age, gender, health, and lifestyle.

Lifestyle factors that can affect the average cost of life insurance include:

• Smoking status: Smokers are at a higher risk of developing health issues, so life insurance for smokers tends to be more expensive.
• Health and weight: Insurers will consider your medical history, including any pre-existing conditions, as well as your current health metrics such as blood pressure and cholesterol levels. Being overweight is linked to medical conditions with higher mortality rates, so maintaining a healthy weight can result in lower premiums.
• Family medical history: A history of hereditary diseases in your family can affect your premium. Insurers may ask about serious illnesses or diseases in your family, such as cancer or diabetes.
• Driving record: A history of DUIs, DWIs, or major traffic violations may result in higher rates, as these can indicate a higher risk.
• Occupation and hobbies: High-risk jobs or dangerous hobbies can lead to higher insurance costs. Occupations that may be considered high-risk include police officers, firefighters, pilots, and construction workers. Hazardous hobbies include skydiving, racing cars, scuba diving, and rock climbing.

By making positive lifestyle changes and reducing risky behaviours, individuals may be able to lower their life insurance premiums. Maintaining a healthy weight, quitting smoking, and avoiding high-risk activities can all contribute to reducing the average cost of life insurance.

How to lower the average cost of life insurance

The average cost of life insurance is $26 a month, based on data for a 40-year-old buying a 20-year, $500,000 term life policy. However, there are ways to lower the average cost of life insurance. Here are some strategies to help you reduce the financial burden:

Shop around and compare quotes

Prices can vary significantly between life insurance providers, even for the same coverage. By shopping around and comparing quotes from different insurers, you can find the best deal that suits your needs. Online comparison tools and insurance brokers can simplify this process.

Choose the right type of policy

Term life insurance is generally more affordable than whole life insurance. Term life insurance provides coverage for a set period, such as 10, 20, or 30 years, without accumulating cash value. If your primary goal is to protect your family during your working years, a term policy can be a cost-effective choice.

Determine the appropriate coverage amount

Avoid over-insuring yourself. Calculate the amount your family would need to cover immediate expenses, outstanding debts, and future financial needs. By accurately assessing your needs, you can lower your coverage amount and reduce your premiums while ensuring your family is protected.

Maintain a healthy lifestyle

Your health and lifestyle choices impact your life insurance premiums. Maintaining a healthy lifestyle, including regular exercise, a balanced diet, and avoiding tobacco products, can help you qualify for lower rates. Insurers often require a medical examination before issuing a policy, so taking care of your health is crucial.

Bundle insurance policies

Consider bundling your life insurance with other types of insurance, such as home and auto insurance. Many insurance companies offer discounts to customers who bundle multiple policies, which can result in significant cost savings.

Pay premiums annually

Instead of paying monthly premiums, which often come with higher administrative fees, opt for annual payments. Paying your premiums annually can help you save on extra costs and potentially reduce your overall policy expenses.

Apply early

The cost of life insurance tends to increase with age. Applying for life insurance when you are younger and healthier can help you lock in lower rates. The longer you wait, the more your rates will increase due to age alone.

Choose term life insurance

Term life insurance is significantly more affordable than permanent life insurance. Permanent life insurance is more complex and designed for specific situations, such as certain estate planning needs. For most people, term life insurance is sufficient and offers the best value for money.

Lower the face value and/or term length

If the insurer's offered rate is too high, you can reduce the death benefit and/or shorten the term length to lower your premiums. An insurance agent can help you find the best balance between coverage, term length, and affordability.

Frequently asked questions