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Understanding the cost of life insurance

Learn what goes into pricing life insurance and how to get a low-cost policy to protect your family.

Nupur GambhirRebecca Shoenthal author photo

Nupur Gambhir & Rebecca Shoenthal

Published September 23, 2020

KEY TAKEAWAYS

  • The cost of life insurance is determined by five factors: policy type (term vs. whole), health, age, hobbies and gender

  • It’s best to get coverage sooner rather than later, because rates increase as you age and as your health declines

  • Where you live, how many beneficiaries you have and the number of life insurance policies you hold do not affect your policy’s premiums

Life insurance provides a financial safety net that you'll potentially be paying monthly premiums toward for some decades. That’s why it’s important to understand the cost of your policy. After all, letting a policy lapse because you can’t afford it defeats the purpose of having it in the first place.

If you want to dive a little deeper, you can learn about what exactly goes into the cost of your policy. Knowing what factors determine the cost before you get life insurance quotes can help you make the best decisions during the application process and find a policy that fits your budget.

IN THIS ARTICLE

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How much is life insurance?

The following are sample rates of a 20-year policy for a 35-year-old male non-smoker with a Preferred health rating.

The average cost of life insurance

A healthy 35-year-old male can expect to pay about $49 per month on life insurance premiums. But individual costs depend on a number of factors, including the details of your policy, your health, age, hobbies, and gender — these are some of the criteria used by insurance providers to give you a classification that deems how risky you are to insure.

5 keys to calculating life insurance cost

Life insurance cost is determined by five main factors: your policy type, your health, your age, your hobbies, and your gender. Learn more at Policygenius.

Factor 1: Your life insurance policy

Coverage amount and term length

How much life insurance you need is a two-part question: how much coverage you need (the death benefit, and how many years you need that coverage to last (the term). Both are important and affect the cost of life insurance. Policies with higher coverage amounts will cost more, as will policies that last longer.

Note that the policy length is only applicable to term life insurance. Permanent life insurance doesn’t have this limitation and costs more. More on this distinction below.

Policygenius' free cost calculator can help you figure out how much life insurance coverage you need, how much it will cost you on average, and let you compare policies side-by-side.

Type of life insurance

The type of life insurance you have will affect the cost of the policy. A term life insurance policy is the most common and most affordable; a permanent policy is more expensive but has extra perks, like an investment-style cash component.

Term life insurance rates

With term insurance, you pay a monthly premium for a set amount of time. If you pass away while your policy is active or in-force, the insurance company will pay out a death benefit to your beneficiaries. A term life insurance policy is the right policy for most people. A healthy 30-year-old male can expect to pay an average cost of $26 a month for a 20-year policy with a $500,000 coverage amount.

Whole life insurance cost

While term insurance is typically affordable, whole life insurance has the potential to be pricey. Whole policies can be five to 15 times as expensive as a comparable term policy. This is because:

  • It lasts longer. A term life policy has an expiration date, but a whole life policy doesn’t. As the name implies, it lasts your entire life as long as you pay the monthly premiums, and therefore it’s more likely that you’ll die while the policy is active.
  • There’s an additional cash-value component. Like other types of permanent life insurance, whole life has a cash-value component in addition to a life insurance component. Premium payments are split between these two sides, leading to higher rates.
  • There are more fees. Due to the above points, there are management fees associated with whole life insurance that are incorporated into premium rates.

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Riders

Riders are like mini contracts appended to your life insurance policy that allow for customization for individual scenarios. They often come at an additional cost that will raise your premium and as such, some riders might not be worth it.

Factor 2: Your health

Your health status is one of the most important factors in determining your premiums. The healthier you are, the less likely you are to die, and thus cheaper to insure. During the underwriting process, you’ll have to answer some questions about your health and your family health history and take a brief medical exam. The insurance company may also request an Attending Physician’s Statement (APS) from your doctor to get their assessment of your health as well.

Some health-related factors that might result in higher premiums include:

  • High blood pressure
  • High cholesterol
  • Hypoglycemia
  • HIV/AIDS and hepatitis
  • Recreational drug use including marijuana
  • Nicotine use
  • Chronic illness

If you use marijuana, your insurance company might also take that into consideration or even classify you as a smoker. However, it's still possible to find providers to accommodate your lifestyle and health status whether you're a smoker, former smoker, or marijuana user, so it's important to shop around.

Similarly, chronic illness or pre-existing conditions also tend to warrant higher premiums, but it's still possible to find affordable life insurance coverage with the right provider.

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Factor 3: Your age

Your rate is set when you sign the policy, and it won’t change during the term of the policy. But, as you age, the cost of purchasing life insurance increases. Each year that you delay buying a life insurance policy, the cost of premiums increase by 4.5-9% on average.

Your best bet to lock in cheaper rates is to purchase a term life policy, where the premiums remain the same throughout the entirety of the policy, while you’re young and in good health. By doing so, you’ll get the same amount of life insurance coverage for a much lower price than you’d pay when you’re older.

The below rates demonstrate how the premiums you pay for your life insurance policy increase as you age.

Average life insurance rates by age for men

AGE$250,000$500,000$750,000$1,000,000$2,000,000
20$17.82$28.26$39.76$47.25$89.25
25$17.48$27.66$38.87$46.15$87.04
30$17.85$28.73$40.48$48.20$91.15
35$19.05$30.67$43.30$52.16$99.07
40$24.32$41.02$58.48$72.69$140.13
45$35.54$60.88$88.70$113.03$220.80
50$53.70$94.57$138.68$176.97$348.68
55$85.75$153.96$225.24$289.64$574.03
60$150.65$266.74$390.84$504.46$1,003.66

Average life insurance rates by age for women

AGE$250,000$500,000$750,000$1,000,000$2,000,000
20$14.49$21.65$29.77$35.03$64.81
25$14.52$21.76$29.95$35.55$65.92
30$15.17$23.02$31.88$37.43$69.61
35$16.71$25.68$35.90$42.63$80.05
40$21.21$33.80$48.07$52.72$112.91
45$28.51$47.53$68.60$86.33$167.41
50$41.78$71.68$104.60$132.64$232.74
55$61.29$108.88$159.50$209.21$413.16
60$110.80$192.52$283.21$361.92$718.58


Methodology: Rate increases by age are based on $1M, 20-year term life insurance policy for non-smoker males and females in Preferred health rating, ranging from 30-50 years old, as of September 22, 2020. This calculation is a composite of the 11 carriers that offer policies through Policygenius, including AIG, Banner, Brighthouse, Lincoln, Mutual of Omaha, Pacific Life, Principal, Protective, Prudential, SBLI, and Transamerica.

If you don’t have any dependents now but think you’ll have some in the future, you could save hundreds of dollars a year by planning ahead — and that means coverage for your kids’ child care and college expenses, even if right now they’re just a twinkle in your eye.

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When it makes sense to buy when you’re older

Most people don’t need to buy a life insurance policy when they’re older. For one, you’ll hopefully have fewer people who rely on you for financial security, as your dependents become independents and you start paying off long-term expenses like your mortgage or car loan. Not only will you not need as much coverage, but insurers may not even offer it to you past a certain age.

However, even though a healthy person in their 50s can expect to pay between three to six times as much per month than in their 20s, there are times when it makes sense to buy a life insurance policy when you’re older. Maybe you have a lifelong dependent or started a family later than usual, a trend among many millennials who can’t afford to settle down earlier.

Factor 4: Your hobbies

When you apply for life insurance, the underwriting process evaluates how risky of a candidate you are to determine how much you will pay for life insurance premiums. If you have a job that puts you at risk or have any dangerous hobbies, such as skydiving or scuba diving, you can expect to see higher life insurance premiums.

"In order to cover you while working in a high risk occupation or while participating in hobbies that are considered higher risk, insurance companies might require something called a flat additional fee, such as $2 or $5 per $1,000 of coverage," says Patrick Hanzel, Advanced Planning Specialist and Certified Financial Planner at Policygenius.

A skydiver with a $1,000,000 policy could end up paying an extra flat additional fee of $5,000 per year. However, someone who skydives too much might not be able to purchase life insurance with certain carriers at all. A Policygenius advisor can help you determine the best carrier options based on your hobbies and how frequently you participate in them.

Even though an adventurous hobby might increase the cost of your life insurance premiums, it’s important to be completely honest about it in a life insurance application. If your life insurance carrier finds out that you lied on the application, they can invalidate your coverage when you die and not pay out the death benefit to your beneficiaries.

Factor 5: Your gender

The underwriting process essentially evaluates how long you will live to determine how much you pay for life insurance premiums. Because women tend to live longer than men, they also receive lower life insurance rates.

The graph below shows the difference in life insurance premiums between men and women for a 20-year term policy.

AGE $250,000$500,000$750,000$1 MILLION$2 MILLION
20Male$18.33$28.52$40.02$47.23$86.79
Female$14.52$21.60$29.56$34.66$63.52
25Male$17.45$27.57$38.59$45.84$85.74
Female$14.56$21.69$29.69$35.19$64.76
30Male$17.94$28.58$40.11$47.48$89.30
Female$15.28$23.06$31.22$37.02$68.97
35Male$19.15$31.02$43.75$52.20$98.57
Female$16.86$26.08$36.36$42.67$79.42
40Male$24.83$41.00$58.52$72.41$139.08
Female$21.26$34.03$48.29$58.97$112.19
45Male$35.87$61.21$89.11$113.21$220.65
Female$28.80$47.85$69.20$86.01$166.49
50Male$54.07$95.07$139.23$177.31$348.71
Female$42.18$71.38$103.98$131.43$255.48
55Male$85.81$150.94$220.28$279.98$546.91
Female$60.88$107.71$157.48$204.52$403.50
60Male$147.80$260.05$380.00$486.53$967.52
Female$108.05$185.92$272.88$345.23$685.49

At this time, there is no established protocol on gender for transgender applicants. While typically carriers will offer policies based on your actual gender as opposed to the gender you were assigned at birth, it’s unfortunately up to the underwriter to make this determination. It’s best to shop around to find a carrier that will recognize your gender in your life insurance policy.

What doesn’t affect your life insurance premiums?

Although the underwriting process accounts for factors like age and gender, life insurance companies cannot discriminate against race, ethnicity or sexual orientation as determining factors during the underwriting process.

Here are some other factors that will not affect how much you pay for life insurance:

Where you live

As long as you live within the U.S., the state or city you live in doesn’t affect your premium prices. This means that your premiums won’t increase even if your area is prone to certain natural disasters or has higher rates of violence. But because life insurance is state-regulated, where you live can determine certain rules and regulations related to your policy.

How many beneficiaries you have

Many people choose to name multiple life insurance beneficiaries in their life insurance policies. Your premiums won’t increase or decrease based on how many beneficiaries you name, whether you have one or several.

How many policies you have

Depending on your financial situation, having multiple life insurance policies might make sense. Sometimes, stacking (or laddering) multiple policies can even save you money long term. If you end up getting coverage from multiple policies, your premiums for any single policy won’t increase based on how many total life insurance policies you hold.

The bottom line

The cost of your life insurance policy depends on five factors: the type of policy you get, health, age, hobbies and gender. The average cost of life insurance goes up as you age, if your health worsens, or if you pick up any dangerous hobbies, which is why it’s better to get coverage sooner rather than later.

Additionally, men tend to see higher premiums than women. For example, a healthy 35-year-old male can expect to pay about $49 per month on life insurance premiums, while a healthy 35-year-old female can expect to pay about $40 per month for a term life insurance policy.

Choosing a permanent life insurance policy over a term life insurance policy will also increase your rates. Comparing quotes across multiple insurance companies is the best way to find a competitive rate that works for you.

Insurance Expert

Nupur Gambhir

Insurance Expert

Nupur Gambhir is an insurance editor at Policygenius in New York City. Previously, she has worked in marketing and business development for travel and tech. She has a B.A. in Economics from Ohio State University.

Insurance Expert

Rebecca Shoenthal

Insurance Expert

Rebecca Shoenthal is an insurance editor at Policygenius in New York City. Previously, she worked as a nonfiction book editor. She has a B.A. in Media and Journalism from the University of North Carolina at Chapel Hill.

Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.

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