Q

What is a life insurance premium?

A

Premiums are the payments you make monthly or annually to your life insurance company in exchange for coverage. If you don’t pay your premium, you lose coverage.

Amanda Shih author photoNupur Gambhir

By

Amanda Shih

Amanda Shih

Editor & Licensed Insurance Expert

Amanda Shih is an insurance editor and licensed Life, Health, and Disability agent at Policygenius in New York City. Her work has appeared in Slate, Lifehacker, Little Spoon, and J.D. Power.

&

Nupur Gambhir

Nupur Gambhir

Life Insurance Expert

Nupur Gambhir is an insurance editor at Policygenius and licensed Life, Health, and Disability agent in New York.

Updated July 9, 2021|4 min read

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Buying life insurance means buying coverage and protection for your family. You make payments, called premiums, to ensure your policy is active and would pay out a death benefit to your loved ones when you die.

Premiums are set by your insurance company and are based on a number of factors, including your age and health, the type of policy, the coverage amount, and whether you add on any riders. Except in rare cases, your rates are set for the life of your policy.

Key Takeaways

  • Six main factors determine your life insurance premiums: type of policy, term length, coverage amount, your age, your health, and policy add-ons

  • Premiums are paid monthly, quarterly, semi-annually, or annually

  • Traditional life insurance policy premiums stay the same for the duration of the policy

  • Life insurance premiums are not tax-deductible

What are life insurance premiums?

Your premiums are the payments you make to keep your life insurance policy in force. As long as you pay your premiums, your life policy remains active for the policy’s duration.

If you buy a permanent life insurance policy like whole life insurance, your policy premiums keep your coverage in force for life and pay for extra features like a cash value you can access while you're alive. Term life insurance stays in force for a set period (the term), usually 10-30 years, then expires.

→ Check out our full glossary for definitions of more life insurance terms

How often do you pay life insurance premiums?

Most people pay their premiums monthly, but you can save money by paying annually. Some life insurers offer discounts of 2-5% if you pay up front each year. Those savings can add up, but monthly payments are easier for most people to budget for.

How do you pay your life insurance premiums?

The most commonly accepted forms of payment are electronic funds transfer (EFT) and check, though other forms may be available from your insurance company. Most life insurance companies do not accept credit card payments beyond the initial payment, and none accept cash.

How are life insurance premiums determined?

Six main factors determine your life insurance premiums:

1. Type of policy

Whole life insurance policies don’t expire and have a cash value component, which can gain or lose value over time and can be used while you’re alive.

These extra features mean whole life premiums are five to 15 times as expensive as term life insurance premiums. Term life insurance is much cheaper and is the best option for most people.

2. Coverage amount

The higher your coverage amount, the higher your premiums. For example, a 35-year-old female without serious health concerns can pay about $24 per month for a 20-year, $500,000 term policy, but about $42 per month for a 20-year, $1,000,000 policy.

3. Term length

Coverage that lasts for longer costs more money. A 20-year, $500,000 policy for a 35-year-old male costs about $29 per month, compared to around $45 per month for a 30-year, $500,000 policy.

4. Age

Life insurance rates are higher for older applicants. Premiums increase an average of 4.5-9% for each year you age.

5. Your health, hobbies, credit score, and other factors

Life insurance companies evaluate your health history, family’s health history, and results of a medical exam for signs of risk, plus your:

Insurers use these findings to assign you a health rating that significantly impacts your premiums.

6. Riders

It’s possible to add riders to your policy to customize your coverage. While some riders are free or included with your policy, others require an additional premium.

Riders that typically cost extra include:

  • Long-term care: Uses the death benefit to pay for assisted care if you can no longer care for yourself independently.

  • Return of premium: Refunds the premiums you paid into the policy after it expires.

  • Waiver of premium: Waives premium payments if you become disabled and are unable to work.

→ Learn more about why life insurance is worth the cost

Why your premiums might differ from your life insurance quotes

Life insurance quotes are estimates that your insurance broker or company give you before and during the application process. Your initial quotes are usually close to your final premiums, but can change based on information your insurer discovers during underwriting.

When you apply for life insurance, the first quotes you get are based on an initial series of questions about your health, family history, and driving record. Next, you’ll talk to a life insurance agent on the phone (life insurance is highly regulated, and this is a must). The agent will get a fuller picture of your health, and this additional information may change your quotes. 

After your call, you’ll set up a free medical exam or the insurer will request previous medical records from your doctors. If more potential insurance risks are discovered, your rates will change again.

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Are life insurance premiums tax-deductible?

Your life insurance premiums are not tax-deductible. But in most cases, the death benefit is paid out tax-free to your beneficiaries.

There are exceptions: if the death benefit is paid to your estate, the estate could be subject to taxes. And if your beneficiaries receive the death benefit in installments, any interest earned on the unpaid portion is taxed as income.

What if you can’t pay your premiums?

If you have a life insurance policy in place and can’t pay your premiums on the billing date, you have a 30-day grace period to make a payment before they cancel your policy. Under special circumstances, they might extend this period.

During the COVID-19 pandemic, many life insurance companies are extending grace periods to 60 or 90 days. To get an extension, you need to call your insurer and explain how you are impacted financially. They may require supplemental documentation.

Life insurance premiums are one of the core elements of a life insurance policy, so it’s important to understand how they’re determined and how they fit into your budget. Get some free life insurance quotes to see which coverage options fit your family’s financial needs.

FAQ:

How do life insurance premiums work?

Premiums are what you pay the insurance company in exchange for coverage. Payments can be made monthly, quarterly, semi-annually, or annually by electronic funds transfer or check.

How much does life insurance cost?

The cost of life insurance varies depending on your age, health, lifestyle choices, and how much life insurance coverage you’re getting.

What happens if you don’t pay your life insurance premiums?

If you miss a premium payment, most insurers offer a 30-day grace period. After that, your policy will lapse, which means you’ll lose your life insurance coverage.

Can your life insurance premiums change?

For most policies, premiums stay the same. Less common policies, like annual renewable or universal life insurance, have premiums that can change.

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