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Understanding the cost of life insurance

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

Life insurance is a part of your financial safety net that you’ll be paying for for 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. Learn more about:

Average cost of life insurance

Most people can expect to pay around $300-$400 per year for their policy. But individual costs depend on a number of factors, including the classification you’re assigned, your coverage amount and term length, the riders you choose, and the type of policy.

Classification

Life insurance companies use classifications to determine how risky you are for them to insure — what are the chances that you’ll die over the course of your policy? If you’re very unhealthy and more likely to die during the term of your policy, you’ll be charged more. If you’re very healthy, and there’s little risk that the life insurance company will have to pay the death benefit, you’ll get more affordable rates.

Classifications are calculated during the underwriting process after the underwriter looks at:

  • Your age. In most cases, the older you are, the more you’ll pay for life insurance. This is due to general declining health and increasing likelihood of dying while the policy is active. Learn more about how life insurance rates increase with age.
  • Your health status. Applicants will typically need to take a medical exam and answer questions about your family health history and whether or not you smoke. The insurance company may also request an Attending Physician’s Statement (APS) from your doctor to get their point of view on your health history.
  • Your driving record. With a motor vehicle report, the insurance company can see if you’re a reckless driver and more likely to get into accidents.
  • Your hobbies. Some hobbies are more dangerous than others. If you scuba dive or rock climb on the weekend, the insurance company takes that into account.

With all of this information gathered, an underwriter will crunch some numbers and assign you a classification. If you aced everything, you’ll be assigned a Preferred Plus rating. That helps you secure the lowest life insurance premiums. If there are some marks against you, like high blood pressure, you’ll be dropped to lower classes like Preferred, Standard Plus, and Standard accordingly. Smokers will get Tobacco classifications.

Read more in our in-depth guide to life insurance classifications.

Coverage amount and term length

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

Note that how long the policy lasts is only applicable to term life insurance. Permanent life insurance doesn’t have this limitation, but costs more. More on this distinction below.

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Riders

Riders are like mini contracts appended to life insurance policies that allow for customization and provisions for individual scenarios. However, depending on the provision, there could be an additional cost that doesn’t make the rider worth it. A return-of-premium rider refunds premiums at the end of a policy term, but you might be better off having invested that money; waiver-of-premium, accidental death, or child coverage riders are also usually not worth the extra price.

Everyone’s situation will be different, and some riders may be worthwhile, but you should always consider the potential additional cost before adding one to your policy.

Type of life insurance

Life insurance comes in different types. Term is the most common and most affordable; permanent policies are more expensive but have extra perks, like an investment-style cash component.

The type of life insurance you have — term or permanent, and which specific type of permanent insurance — will largely affect the cost of the policy. We will go into the two most popular types, term and whole, below, but you can learn more about the other types life insurance.

Term life insurance cost

A term life insurance policy is the right policy for most people. A healthy 30-year-old male can expect to pay an average of $21 a month for a 20-year policy. Unlike permanent policies, there are no “extras” with term insurance that raise the rates; you just need to be aware of the factors listed above.

Learn more about term life insurance rates.

Cost of whole life insurance

While term insurance is typically affordable, whole life insurance is usually most expensive. Whole policies can be six to 10 times as expensive as a comparable term policy. This is because:

  • It lasts longer. Term life has an expiration date, but whole life doesn’t. As the name implies, it lasts your entire life as long as the monthly premiums are paid, and it’s therefore 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.

Learn more about whole life insurance rates.

There are different ways of finding affordable life insurance, and knowing what goes into the cost before you get life insurance quotes allows you to make the best decisions during the application process and find a policy that fits your budget.

Read more

How to buy life insurance

Shopping for life insurance shouldn't be confusing. Follow this step-by-step guide to get started.

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How much life insurance do you need?

Learn the 5 financial factors to take into account when deciding how much life insurance you need.

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Life insurance shopping for spouses

Spouses can buy separate policies or one joint policy. Learn which is the best option, even for stay-at-home spouses.

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Disclaimer: 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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