Getting older stinks. Everything aches, hangovers take weeks to cure, and all of your friends are too busy #adulting to hang out with you.
Plus, the premiums on the term life insurance policy you bought while you were young, spry, and healthy must be increasing, right? There's no way you could be paying the same premium as when you were in your thirties!
Do term life insurance premiums on purchased policies, like you, age like a fine wine or increase annually?
Your term life insurance premiums will not increase, but that’s because of some complicated math behind the scenes. Most term life insurance is guaranteed level premium term life insurance, which is lot of words to say that the price stays the same.
Your annual premium is based on a number of factors like family health history, gender, and whether or not you’re a smoker, but it’s also based on age. The younger you are, the cheaper your premiums. And since your health typically worsens as you get older, insurance companies take that into consideration when they’re figuring out how much to charge you for your ten, twenty, or thirty year term insurance policy.
However, with guaranteed level premium term, instead of increasing your premium annually, the insurance company factors it all in right off the bat so you always pay the same amount each year for the length of your term. (Get the wordplay? Your premiums are guaranteed to stay level for the whole term.) You pay the same now at 35, for example, as you will when you’re 55.
Edward Petersmarck, national sales consultant with M&O Marketing, was kind enough to break the process down in an example (in this case, someone buying a twenty-year term): "The life insurance actuaries determine the cost of insurance for each of the twenty years in the term based on the insured’s age, gender, medical history, lifestyle risk factors and his mortality experience. The annual premium costs per year are then added together and then divided by twenty. That average cost is due as premium for each of the twenty years to keep the $100,000 death benefit in force."
Thanks to that math, you'll be able to carve a spot in your budget for life insurance for the next ten, twenty, or thirty years. This makes it a lot easier to stick with your term life insurance policy for the entire length of the term, instead of canceling it while you still need the coverage.