People agree that life insurance is a wise investment, but many people don’t have policies. Cost is the number-one reason why Americans delay getting coverage, according to the LIMRA 2015 Insurance Barometer. At the same time, 80% of consumers don’t know how much they should expect to pay for term life insurance, with many overestimating the cost.
This isn’t surprising because it’s difficult to arrive at an average life insurance cost that applies to everyone. There are so many factors — age, gender, health and more — that play into how an insurer calculates your premium. By evaluating those factors, you may not arrive at a specific dollar amount, but you can get a better idea of what reasonable life insurance quotes should be for you.
The Type of Life Insurance Affects the Cost
There are two main types of life insurance: term and permanent. Term life insurance provides coverage for a set amount of time, say 15 or 30 years. You pay premiums during that time, and if you die during the term, then your beneficiaries receive the death benefit. If you live longer than the term, then coverage ends and you lose the money you paid in.
Term life insurance comes with much lower premiums — as much as 10 or 20 times lower than a perm policy with a similar death benefit. A healthy middle-aged individual can secure a 20-year term policy with a $1 million death benefit for around $500 per year or less, but a permanent policy with a similar benefit could be somewhere in the neighborhood of $5,000 per year.
Permanent life insurance, such as universal, variable and whole life, provides coverage for the rest of your life, and the likelihood of collecting the death benefit is higher than with a term policy. Permanent products often have cash value and function as savings or investment plans. As a rule, they come with much higher premiums. The type of insurance that you choose plays a large role in how much you pay.
Personal Factors That Affect the Cost of Life Insurance
Insurance companies take certain factors into consideration when determining your insurance rate. These factors relate to your life expectancy. That’s because the longer you live, the less likely it is that the insurance company will pay on the policy. The longer your life expectancy, the lower your insurance rates. Here are the major factors that impact life expectancy and, consequently, life insurance cost.
Life insurance companies are keenly interested in your age. With each passing birthday, you can expect the cost to increase. Again, that’s because life insurance companies calculate your rates based on life expectancy. If you wait until age 45 to purchase certain types of life insurance, then you might pay more than double what you would have paid if you purchased insurance at age 35, and it continues to increase the longer you wait.
Statistically, women have a longer life expectancy than men. A 2014 report published by the CDC states that the average life expectancy for women is 81.2 years, while the average life expectancy for men is 76.4 years. Although genetics play a role, Dr. Jiaquan Xu, lead author of the report, stated that men also take more risks and are more likely to participate in high-risk activities. Because life insurance rates are based on life expectancy and lifestyle factors, women tend to pay less than men.
Your current health condition plays a big role in your life expectancy, so it’s common practice for life insurance companies to require a physical exam by a doctor before determining your premium. Some companies will agree to cover you without an exam but automatically charge you a higher premium. If you have a chronic condition, are overweight or use tobacco, then you should expect significantly higher rates. Some life insurance companies may refuse to insure you altogether.
Other Lifestyle Factors
A high-risk or high-stress job — think miner, firefighter, police officer — results in higher insurance costs. Likewise, factors such as credit history and driving record also play a role in determining how risky you are to the insurance company. If you regularly participate in certain recreational activities, such as mountain climbing or amateur race car driving, for example, the insurer may raise your premiums.
Get a Life Insurance Quote
How much does life insurance cost? There is no one-size-fits-all average. Because each individual is unique, it’s difficult to calculate average rates. For example, a 25-year-old smoker can expect to pay double what he would if he were a non-smoker, and a 45-year-old smoker could pay three times as much as his healthier counterparts, so it’s comparing apples to oranges in most instances.
Looking at average costs and comparisons can give you a ballpark idea of what you could possibly pay, but you’ll get a much more accurate estimate if you take the time to select the right type of life insurance for you and then get quotes from several companies. Many life insurance providers have online quote tools that give you basic estimates after you input your personal data. Remember, if you have people in your life who depend on you, then you need life insurance.