Does where you live affect your life insurance policy?

The state you live in won’t usually affect the cost of your policy, but your location does affect the rules and regulations that surround it.

Nupur Gambhir

Nupur Gambhir

Published April 6, 2020

KEY TAKEAWAYS

  • You likely won’t see higher or lower premiums due to geographic location

  • Life insurance companies are regulated by local legislative bodies; each state may have different rules for the free look period, late payments, and life insurance insolvency

  • States may also have laws that restrict who you can name as your policy’s beneficiary

When you apply for life insurance, the life insurance company measures the risk of insuring you. They consider a number of factors that are out of your control, such as your family history, age, and gender — so do they also consider where you live as a factor in determining your policy options and rates?

Unlike homeowners and auto insurance, where you live won’t impact the price you pay for life insurance premiums.

But because life insurance is regulated by state legislature, a policy in New York might work differently than a policy in Utah. Each state has its own rules about refunds for new life insurance policies, grace periods for late payments, and protections for policyholders and beneficiaries if a life insurance company goes bankrupt. Additionally, laws in place can impact who can get the life insurance death benefit.

In this article:

Compare and buy life insurance

Compare and buy life insuranceGET STARTED

Can your geographic location affect your life insurance premiums?

Each state comes with its own sets of hazards and risks. Coastal states are prone to the consequences of climate change, such as an uptick in hurricanes and wildfires, while inland states like Ohio are at high risk of devastating tornadoes. But while life insurance companies take mortality risks such as your medical history or any dangerous hobbies into account when determining your life insurance premiums, they aren’t going to charge you more because you live in a state prone to natural disasters or other risks to mortality, such as above-average obesity rates.

Though your geographic location won’t earn you a lower health classification and higher premiums, each state has its own local legislature that has implications for you and your policy.

How local legislation impacts your policy

State legislation is the primary governing body for life insurance policies and protections for policyholders. When you’re going through the life insurance application, you’ll should ask the insurance broker you are working with about the following specifics that vary state by state:

  • 1. Free look period — the period of time where policyholders can back out of their policy and receive a refund for their initial premium payment, which varies by state
  • 2. Late payment grace period — the period of time you have to make up a late premium payment before your policy is legally terminated
  • 3. State guaranty — state organizations that ensure continued coverage and a death benefit payout if your life insurance company is declared insolvent or bankrupt vary in coverage protection amount

State associations work together through an organization called the National Organization of Life and Health Insurance Guaranty Associations (NOLHGA). You can find your state’s guaranty association on their website here.

Policyholders can learn more about their state’s insurance regulations by visiting their local insurance department.

Laws about travel

Your travel can impact your health classification and eligibility for a life insurance policy, whether it’s travel for business or leisure. Depending on the length, frequency, and destination, it’s entirely possible to get a lower rating — and higher premiums — or be disqualified from purchasing a life insurance policy altogether, based on your travel plans.

But, some states have legislation in place that prohibits life insurance companies from using any planned lawful travel to determine your life insurance policy. These states are:

  • Florida
  • Georgia

Life insurance companies also look at your history as an indicator of future behavior. The following states have legislation in place that prohibits life insurance companies from using past lawful travel as a factor in your life insurance health classification or eligibility:

  • California
  • Connecticut
  • Colorado
  • Illinois
  • Maryland
  • Massachusetts
  • New York
  • Oklahoma
  • Washington
policygeniusSymbolCenter

Compare the market, right here.

Policygenius saves you up to 40% by comparing the top-rated insurers in one place.

Laws about beneficiaries

The state you live in can affect who you list as your beneficiaries and how they can receive the death benefit. This is due to the age that is deemed a legal adult in certain states and community property laws.

Age of the minority

When you’re naming your life insurance beneficiaries, either primary or contingent, you may be considering naming your child as your life insurance beneficiary. Though you’re likely putting a life insurance policy in place for their protection, naming your children as your life insurance beneficiary isn’t always a good idea. That’s because if your dependents aren’t yet at the age of the majority in your state, they may not be able to legally receive the death benefit. If you die and your child isn’t at the age of the majority, the funds could get tied up in court and they might not get to access the death benefit when they really need it.

In most states, the age of the majority is 18, but three states designate legal adulthood differently. Those states are:

  • Alabama - 19
  • Nebraska - 19
  • Mississippi - 21

What to do if your child isn’t in at age of the majority

If you would like to leave your life insurance death benefit to your minor child as opposed to a spouse, you can put the death benefit into a trust to ensure that the payout doesn’t get tied up in court for years.

To do this, you’ll need to assign a custodian that you trust to disperse the funds in accordance with your wishes when the death benefit is paid out. Your policy’s custodian will own the account until your child reaches the age of the majority and can use money from the account for eligible expenses, which vary depending on state law. If you don’t specify a custodian, again, the courts will choose for you. They will usually pick the surviving spouse if they are still alive.

If you know that you’d like some of the death benefit to go towards a college education, you can designate some of the money to a Section 529 account, which can be withdrawn tax-free if used for higher education expenses.

State community property laws

Some states have community property laws in place, which deem all your assets and income as community property. If you live in a state with community property laws, your assets are considered by the state to be jointly owned with your spouse. Because life insurance is an income replacement, it’s also subject to community property laws.

States with community property laws are:

  • Arizona
  • California
  • Idaho
  • Louisiana
  • Nevada
  • New Mexico
  • Texas
  • Washington
  • Wisconsin

Puerto Rico and Guam also have community property laws, while Alaska, South Dakota, and Tennessee allow spouses to elect community property as well.

If you’re purchasing a life insurance policy and reside in a state with community property laws, you have to name your spouse as your life insurance beneficiary unless they sign a legal waiver that permits you to list someone else.

Before you purchase a life insurance policy, you should talk to your life insurance broker about local laws and regulations to make sure you fully understand how your policy works.