So, just exactly how much does life insurance cost?
This is one of the very first questions that people ask when they’re considering the purchase of a life insurance policy.
But, there is really no one carved-in-stone answer to that question.
This is primarily because there are a number of different rating factors that go into pricing a life insurance policy.
These factors determine the cost of life insurance:
- Tobacco Use
- Product Type
- Coverage Amount
Some additional factors that will affect the average cost of life insurance are:
- Health condition
- Medication History
- Foreign Travel habits
- And many other factors
In addition, the cost of life insurance can also be dependent on the type of coverage that you purchase.
Such as term or permanent.
And, the insurance carrier that you buy your coverage from will also play a key role.
In fact, the cost of a life insurance policy can differ – sometimes substantially – from one insurance company to another. Even for the very same type and amount of coverage!
So just like homes, cars, retirement plans or any other asset that you’re considering, there is not a simple one-size-fits-all policy type or premium cost of life insurance.
Because of that, it is that much more important that you compare several companies life insurance protection and premium cost before you move forward with the purchase of a policy.
This can best be done by working with an independent insurance agent or broker.
An independent insurance agent or broker will typically work in conjunction with many life insurance carriers.
So you can very easily – and very quickly – obtain the quotes and other information that you need in just one place. Without having to spend a ton of time or effort. You can also simply use a quote engine, like the one we built here, to compare the cost of the top life insurance carriers in the country in a matter of seconds.
Going this route will also allow you to get unbiased advice. Because independent agents can sell the products from multiple different life insurance carriers, they aren’t likely to try and sway you to one or another. They will just find a company that is most compatible with you.
Conversely, this isn’t the case when you work with a captive life insurance agent. That’s because captive insurance agents will only be able to recommend the products of one insurance company.
This is the case, regardless of whether or not the coverage fits your needs, or the premium cost fits into your budget.
Before going into any life insurance buying situation, it is a good idea to know which type of life insurance may cost less overall.
Average Cost of Term Life Insurance?
The cost of term life insurance is less than the cost of whole life insurance.
Is this always the case?
Yes – particularly when the applicant is older and in relatively poor health.
One of the biggest reasons for this is because term life insurance provides pure death benefit coverage only. This means no cash value build-up within the policy.
So, because a portion of the premium isn’t funneled into a cash value or investment component, 100% of your premium is instead going towards paying for the death benefit.
This tends to keep the cost down with term life insurance.
While term insurance is purchased for only a certain period of time – or “term” – oftentimes you will have the option to secure this type of coverage for up to 30 years.
Plus, if you go with a level term life insurance policy, the amount of the policy’s death benefit, and it’s premium cost can remain the same throughout the entire duration of the policy.
Term life insurance is oftentimes used for covering “temporary” needs.
For instance, these might include:
- Paying off the balance of a home mortgage
- Ensuring that a child or a grandchild has money to attend college in the future
Term life insurance can also offer a way to obtain a higher amount of death benefit at an affordable cost. So, if you need coverage for securing your family’s financial security, but your budget is not big, term life insurance can be a good option for you.
In addition, you may have other personal savings and/or investments that you contribute to. So, including a savings component in your life insurance policy may not really be all that important to you.
Because of its low cost, term life insurance can provide you with a way to “enter into” life insurance coverage that is needed right now. Then, because some term policies offer a conversion feature, you could switch over to a permanent policy down the road.
With a conversion feature, you may even be able to move to permanent life insurance coverage without having to take a medical exam.
This could provide you with a win-win coverage situation. Low cost term insurance now, and ongoing permanent coverage in the future.
With that in mind, even if your life insurance needs are ongoing, you can still get in today at a low cost.
Average Cost of Whole Life Insurance?
The cost of Whole life insurance is more than the cost of term insurance. And in some cases, much more.
But, there is a good reason for this.
First, as its name suggests, whole life insurance is intended to cover you for the “whole”, or remainder, of your life.
Because of that, these policies are priced differently than term, as the insurance carrier may be taking on much more risk for a much longer period of time.
Also, whole life is a form of permanent life insurance coverage. This means that it offers both death benefit protection and a cash value component.
Therefore, with whole life insurance, the cost can also be higher than term because a portion of your premium is going towards building up cash value.
With whole life insurance, the interest rate on the cash value is set by the insurance company. And, while the funds within the cash account may grow at a seemingly low rate, there are still a number of viable benefits here.
For example, one is that the cash value funds will grow on a tax-deferred basis. This means that there is no tax due on the gain in the account unless or until you withdraw your cash from the policy.
This tax-advantaged nature means that your gains are growing on top of gains, and growing on the money what would otherwise have been paid out in taxes.
Rather than withdrawing your cash value funds, you could instead borrow your cash from the policy.
But why borrow your own money?
There are a couple of good reasons for this, too – which could actually benefit you quite a bit from a financial standpoint.
First, borrowing allows you to access your funds tax-free. This can be extremely beneficial if you want (or need) to make use of 100% of the money, such as for:
- Supplementing retirement income
- Paying for a child or a grandchild’s college education
Plus, even though there will be interest due on your borrowed funds, accessing your policy’s cash value by borrowing can allow you to benefit financially in other ways, such as:
- Purchasing a new vehicle at a lower rate of interest than a lender would charge
- Paying off other high-interest debt, such as credit card balances
The funds that you borrow from a whole life policy are not required to be paid back. But, it is important to note that any unpaid balance – plus interest – will be subtracted from the death benefit that is ultimately paid out.
With that in mind, be sure that your policy will have enough proceeds for your beneficiary’s financial needs in the future.
Finding Low Cost Life Insurance
It’s likely that you’ve seen “low cost” life insurance ads on TV or the Internet. You know the ones where “they shop and you save.”
How is it that these companies can help you with finding low cost life insurance?
It’s because they have access to a wide array of insurance carriers. So, just like any other purchase that you may make, the cost of life insurance coverage should be compared before you actually sign on the dotted line.
This is particularly helpful in saving you money if you plan to own the policy for many years.
When trying to find low cost life insurance, it is typically best to work with an independent insurance agency or broker. This is because independent insurance entities have access to multiple life insurance carriers. And because of this, they can also offer you life insurance cost comparisons.
This happens in a non-biased way. And because of that, you will be much better able to pick and choose the coverage – and the premium price – of the life insurance that best fits your specific needs. See how life insurance works here.
The Average Cost of Life Insurance Coverage
Just like when you consider any other “average,” the average life insurance cost can vary significantly.
This is the case whether you’re seeking quotes on the average cost of life insurance per month, per year, or per policy category.
Let’s take a look at an example to highlight how this works.
John is a 40-year old male, who is in very good health. He is looking for $500,000 in term life insurance coverage. And, he needs the coverage for ensuring that his wife can pay off their mortgage balance – which has another 20 years to go.
He’s is 6 feet tall and weighs in right at 190 pounds. He is also a non-smoker.
As you can see, even though John is comparing the exact same type and amount of coverage – a 20-year, $500,000 term life insurance policy – the cost of this coverage can differ from one insurance carrier to another.
Because of this, it is extremely important that you do your comparison shopping before you commit to a policy.
Why would the very same policy have a different cost at different carriers?
There are several reasons why this can be so.
One is that there are certain insurance carriers that focus on different segments of the market. So, for instance, while one company may offer a lower cost on a Standard rated policy, it may be more difficult for someone else to get coverage if they have a health condition.
Likewise, some insurance companies will specialize in covering those who have health conditions. But in turn, the cost of coverage across the board may then be higher for all of their policyholders.
How to Lower the Premium on Life Insurance
If you plan to apply for life insurance in the future, there are some ways that you can help to keep your premium cost down.
For example, eating right and exercising regularly can help to lower your blood pressure. Also, being at a healthy weight makes you less risky for an insurance company to take on as a policyholder.
This is because you can be less of a risk for acquiring heart disease, stroke, and/or other serious health issues that could lead to the insurer paying out a claim.
Keeping your driving record clean can also play a key role in the cost of your life insurance.
Why is that?
Because safe drivers who have no DUIs and no (or few) traffic violations are also considered to be less risky to a life insurance company.
And again, less risk equals lower premium payments.
Today, many life insurance companies will review a wide array of information about an applicant. And it isn’t necessarily all just health related.
For instance, in addition to checking your driving record, some carriers will also review financial information, such as whether or not an applicant has filed for bankruptcy.
Why does this matter?
There are actually a couple of good reasons.
The key determinant actually has less to do with your bankruptcy filing. But rather, the insurance carrier may have some doubts about your ability to pay the ongoing premium for the policy.
The good news here is that, unlike some other types of insurance, your credit (and credit score) may not be as big of an issue when it comes to life insurance.
Employment – and your job duties – will also be factored into the cost of your life insurance coverage. This is because some jobs are considered to be more dangerous than others.
Consider, for instance, the difference between working in an office from 9 to 5, or being a firefighter who regularly faces life-threatening situations.
When comparing these two scenarios, whose life insurance policy will likely cost the most?
Even your personal hobbies and/or habits can be a factor in the cost of your life insurance policy.
This is because those who take part in activities that can be considered hazardous can also be deemed as riskier when applying for life insurance.
Some of these potentially risky activities can include:
- Scuba diving
- Rock climbing
- Piloting a private airplane
- Race car driving
What if I wait to buy life insurance? How much more will life insurance cost?
So, if you have a zest for the dangerous, it could play a part in the overall cost of your life insurance.
Applying at a younger age can also be in your favor when it comes to the cost of life insurance.
Because a major factor in the price of life insurance is anticipated life expectancy, younger applicants will usually get lower premium rates. (With all other factors being equal).
And, while you can’t turn back the clock on your current age, there is something you can do to lock in a lower premium rate.
Cost of waiting to Buy Life Insurance – An infographic about Cost of Waiting to Buy Life Insurance