The cost of life insurance depends on a number of factors, from personal details to policy choices. And in many cases, it's surprisingly affordable.
Fixing your car. Going to the doctor. Replacing your water heater.
Anytime you’re buying something you need, but don’t really want to buy, your first concern is usually how much it will cost.
The same is true with the cost of life insurance. You need it. You don’t want to buy it. You want to spend as little as possible.
For something that provides considerable value, the cost of life insurance can be quite affordable.
Average life insurance cost
There are many variables that affect the cost of life insurance. That makes it’s impossible to provide a standard amount for everybody.
However, you should be able to find a policy that fits within your budget.
Based on a number of sources, the average monthly premium for all life insurance policies ranges from $25 to $125.
How much is life insurance for you?
The life insurance cost you pay per month may fall in that range, but it could also be more or less. The factors that affect your life insurance cost include:
- Your age. The older you are, the more you will pay. For example, one source showed that the average term life insurance rate by age per month is just less than $16 for people in their 20s. It increases slightly to just over $16 for those in their 30s. People in their 40s pay an average of $22 while those in their 50s pay just under $48.
- Gender. Because men have lower life expectancies than women, they will typically pay more for coverage. In most cases this difference is minimal. For example, when comparing rates for a 35-year-old man and a 35-year-old woman, men will pay $2 to $3 more a month.
- How much coverage you elect. The higher your face amount, the more your premium will be. For example, the average monthly premium for a 20-year term policy on a 35-year-old male is about $18 for $250,000 in coverage. It increases to just under $30 for $500,000 in coverage, $40 for $750,000 of coverage, and $50 for $1 million in coverage.
- The length of term you elect. The average annual cost for a 10-year term is between $500 and $600. For a 20-year term, it’s between $900 and $1,000. Thirty-year term policies will typically cost between $1,500 and $1,600 per year.
- The type of policy you choose. The cost for a whole life insurance policy can range from four times to nine times more than a comparable term policy. Universal life policies can cost even more.
- Additional features you add. Individual life insurance policies typically offer optional riders that provide additional coverage. These riders often require additional premium above the cost of the base policy. Common riders include an accidental death benefit that increases the death benefit for accidents, riders that offer benefits for disability, and riders that provide insurance to a spouse and/or child.
- Underwriting factors. If you qualify for standard underwriting, you may pay around $2,000 a year for a 20-year, $500,000 term policy. If your health and other underwriting factors are better than average, you can qualify for preferred underwriting status. If so, your premium for a 20-year, $500,000 policy falls to $560 annually.
Cost of life insurance based on underwriting factors
Underwriting is the process of evaluating the risk posed by an insured. It determines whether an applicant qualifies for coverage. It also determines the amount of premium the policy owner will pay. If you pose a higher than normal risk of dying at an earlier age, the insurance company will charge more in premium. If you pose no such risks, your premium payments will be lower.
Underwriters will review your application, medical exam results, and other information to assess your health risk.
It’s important to understand the underwriting factors that influence the cost of life insurance. While you can’t do much about your age or gender, there are some underwriting factors you can improve to potentially lower your life insurance cost.
In addition to age and gender, underwriters will also assess your:
- Height and weight. Likewise, life insurance underwriters have guidelines for the optimal weight for men and women of certain heights. The more you deviate from these guidelines, the more risk you present.
- Overall health. Minor ailments and chronic diseases will impact how you are underwritten. The more serious the condition, the more you’ll pay for coverage. In some cases, you may even be denied because of your health. Conditions that impact insurance rates include asthma, high blood pressure, and high cholesterol, as well as cancer, heart disease, diabetes, HIV/AIDS, and depression. To minimize the impact of health conditions, you need to demonstrate to underwriters that you are properly managing your health. That includes taking your medication if applicable and following a physician’s recommendations.
- Family history. The incidence of heart disease, cancer, and other diseases in your family carries greater underwriting risk. Insurance companies will assess how long members of your family lived with a condition to predict your life expectancy.
- Smoker status. Life insurance companies use two sets of risk classes to assess premium rates, one for smokers and one for non-smokers. If you smoked for several years but have quit, you will likely be assigned smoker status. On the other hand, many insurers will make concessions for people who smoke occasional cigars.
- Alcohol use. Similar to how smoking affects a person’s underwriting, an insurance company assesses the prevalence of alcohol. In addition to the health problems caused by alcohol abuse, regular alcohol use presents a higher risk for accidental deaths.
- Driving record. Insurers assess your driving record. They do so to determine if you carry a greater risk of being involved in a fatal car accident.
- Hobbies. Applicants who participate in high-risk activities will likely pay a higher premium. Examples include flying aircraft, sky diving, rock climbing, race-car driving, and scuba diving.
- Foreign travel. Some insurers consider frequent foreign travel a risk factor. How much of a risk will depend on where you travel and how much.
- Employment. Jobs that are considered dangerous will affect a person’s life insurance underwriting.
Based on these factors, the insurance company assigns you a risk rating. The most common rating is standard. A standard rating means the applicant carries an average amount of risk.
If you are young, in optimal health, and/or carry few other risk factors, you may receive a select or preferred rating. This will result in paying less premium.
For example, one survey shows that a 30-year-old woman with standard underwriting would pay an average of $354 a month for a $500,000, 20-year term policy. If she qualified for preferred underwriting, the average cost would drop to $233.
For a 30-year-old man, the cost is $294 a month for preferred and $421 for standard. For a 40-year-old woman, it would be $354 for preferred and $521 for standard. For a 40-year-old man, it would be $421 for preferred and $668 for standard.
If you carry above-average risk factors, you may receive what is called a table rating. Table ratings allow an insurer to further assess an applicant in accordance with their risk level and to provide coverage at an increased rate.
Tables ratings are usually letter grades from A to whatever the lowest rating an insurer will consider. For example, an applicant that has a table rate of A will usually pay the standard rate plus an additional percentage.
Based on your risk assessment, you will receive an offer with a premium amount. If you accept the offer, the insurance company will issue your policy.
Cost of life insurance based on the company
To pay the best rate for coverage, it’s important to get quotes from several carriers. Two policies from different companies for the same amount of coverage could charge much different rates.
One reason for the difference is that insurance companies have varying underwriting practices. A person who qualifies for preferred with one company may only get standard underwriting with another.
Premium rates charged by insurers are also based on these factors:
- Mortality rates. Life insurance involves dividing risk among a large group of people. Insurance companies use mortality tables to estimate how much money it will pay in death claims each year. Premium rates are set based on those estimates for each class of insureds.
- Interest earnings. Insurance companies invest the premiums paid by policy owners in bonds, real estate, and other assets. They base premium rates in part on the anticipated interest from those invested funds.
- Company expenses. Like other businesses, insurance companies have expenses. In addition to the typical operating costs, they also have to pay a commission to the agent who sold the policy. They also have to pay out claims when an insured dies. Premium rates are set to account for expenses while still enabling the company to make a profit.
Jack Wolstenholm is the head of content at Breeze.
The information and content provided herein is for educational purposes only, and should not be considered legal, tax, investment, or financial advice, recommendation, or endorsement. Breeze does not guarantee the accuracy, completeness, reliability or usefulness of any testimonials, opinions, advice, product or service offers, or other information provided here by third parties. Individuals are encouraged to seek advice from their own tax or legal counsel.