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Navigating the Cost of Life Insurance: How to Find Affordable Coverage

What Is the Cost of Life Insurance?  

The cost of life insurance, known as the premium, is typically paid on a monthly, quarterly, semi-annual, or annual basis. There are many different types of life insurance policies and a wide range of factors that influence their cost.

Life insurance is an investment in your family’s future financial security. It provides a lump sum payment in the event of your unexpected death, which can help your loved ones pay for expenses like funeral costs, debts, and other financial obligations. However, purchasing a life insurance policy can be confusing and overwhelming, especially when determining the cost.

Understanding the cost of life insurance is crucial when deciding on a policy that fits your budget and life circumstances. Factors such as age, health, lifestyle choices, and the type of life insurance policy can all impact the cost. In this article, we will break down these factors and explain the cost of life insurance, to help you make an informed decision for you and your family.

Life Insurance Can Offer Protection  

The death benefit of a life insurance policy protects your loved ones from the financial losses that could occur if you were to pass away. These funds can be used to pay off debts, cover your remaining medical bills and final expenses, help to pay living expenses, and more. Individuals with minor children may also purchase policies to cover future expenses, such as the cost of college, a child’s first home, or a wedding. 

Purchasing a life insurance policy can create financial security for those left behind by ensuring they have enough money to cover a portion of their needs. Among households that have privately purchased individual life insurance policies alone, 68% say they feel confident they would be financially secure if their primary wage earner passed away. This increases to 78% among those that have both individual and employer-sponsored life insurance policies. 

What Determines the Cost of Life Insurance?  

Life insurance costs are based partly on the length of time the carrier believes the insured is expected to live before the death benefit must be paid. The longer the life expectancy, the more premiums the carrier receives. A shorter life expectancy results in higher premium costs, while a longer life expectancy can lower the average cost of life insurance per month. When evaluating financial risk, insurance carriers typically look at a variety of factors, including the following.

Your Age and Sex  

Younger individuals typically pay less for their life insurance policies because their assumed life expectancy is longer. As you age, life insurance costs increase because there’s likely a shorter period for the carrier to receive premium payments before paying out the death benefit. Since women typically have longer life expectancies, their cost of life insurance also tends to be lower than for men of the same age and health status.

Your Job and Hobbies

If you work in a high-risk or hazardous industry, such as a pilot or a police officer, you can typically expect your cost of life insurance to be higher than someone with an office job. This is also true if you participate in risky hobbies such as skydiving, rock climbing, or scuba diving since these activities can decrease your life expectancy.

Your Health and Habits  

Your overall health impacts your life expectancy. When evaluating your application, the insurance carrier typically looks at your family medical history and whether you have any pre-existing conditions. If you are overweight or have high blood pressure or high cholesterol, this can also increase your life insurance rates.

Risky habits, such as smoking tobacco, heavy alcohol use, or using recreational drugs, can also increase the cost of life insurance. Life insurance applications typically include questions about these habits, and applicants are required to answer them honestly. 

Your Policy and Coverage Details  

There are several different types of life insurance policies, and the cost of each can differ based on a variety of factors. For example, your overall cost may depend on whether the policy covers you for a specific term or your entire lifetime and whether you purchase the policy as an individual or as part of a group. Higher death benefits typically equate to higher policy costs, and adding riders or endorsements to a life insurance policy can also increase its cost.

The Main Types of Life Insurance  

Life insurance policies are designed to suit various needs and preferences. Accordingly, there are a plethora of policies to meet those individual needs. However, while there are many different policies, most fall into two categories: term and permanent.

Here’s a look at some of the primary types of life insurance and factors that can impact the policy’s total cost. 

Term Life Insurance  

Term life insurance covers you for a set period, such as 10, 15, or 20 years. If you die during the coverage period, the insurance carrier pays a death benefit to your designated beneficiaries. At the end of the term, you may have an opportunity to renew the policy or let it lapse. Once the policy lapses, the insurance carrier has no further obligation, and no death benefit is paid when you pass away.

Additional Factors That Impact the Final Cost of Term Life Insurance  

  • Death benefit: Generally, higher death benefits increase policy costs. 
  • Policy length: Generally, longer coverage periods increase costs.
  • Renewable vs. non-renewable: The ability to renew a term policy may increase its cost.
  • Riders and endorsements: Adding riders and endorsements to a policy generally increases its cost.

Cost of Term Life Insurance  

On average, a 40-year-old man who is a non-smoker and in good health can expect to pay about $103 per month for a $1 million, 20-year term life policy.

Whole Life Insurance

A whole life insurance policy is a type of permanent insurance that offers coverage throughout the policyholder’s lifetime. These policies have a guaranteed death benefit and typically have fixed premiums. They also accumulate cash value, which typically earns a fixed interest rate. Further, policyholders can withdraw or borrow against the cash value during their lifetime.

Additional Factors That Impact the Final Cost of Whole Life Insurance

  • Death benefit: Generally, higher death benefits increase costs.
  • Payment period: Some whole life policies offer limited payment periods, essentially allowing you to pay a larger amount upfront to have smaller or no payments in the future.
  • Application of dividends: Some policies pay dividends and may give you the option to use them to lower your out-of-pocket premiums.
  • Riders and endorsements: Adding riders and endorsements to a policy generally increases its cost.

Cost of Whole Life Insurance  

On average, a 40-year-old man who is a non-smoker and in good health can expect to pay about $1,225 per month for a $1 million whole life insurance policy.

Universal Life Insurance  

Universal life is another type of permanent life insurance. It tends to be less expensive than whole life and offers additional flexibility by allowing you to adjust your death benefit and premiums. These policies also have a cash value savings component but typically do not have a guaranteed rate of return.

Additional Factors That Impact the Final Cost of Universal Life Insurance 

  • Death benefit: Generally, higher death benefits increase costs.
  • Riders and endorsements: Adding riders and endorsements to a policy generally increases its cost.
  • Use of cash value: UL policies allow you to use the cash value in the policy to pay your premiums in part or in full. While this doesn’t necessarily change the policy cost, it can change your out-of-pocket payments. 

Cost of Universal Life Insurance

On average, a 40-year-old man who is a non-smoker and in good health can expect to pay about $674 per month for a $1 million universal life insurance policy.

No Medical Exam Life Insurance

This unique type of life insurance does not require a medical exam as part of the underwriting process. There are two primary types of no medical exam life insurance: simplified issue and guaranteed issue.

A simplified issue life insurance policy typically asks a few simple medical questions on the application, such as whether you smoke and whether you are terminally ill. Based on the answers to these questions, the carrier determines whether to offer you a policy and at what cost. No medical exam is required for a simplified issue life insurance policy. 

A guaranteed issue life insurance policy is similar, except that in addition to not requiring a medical exam, there are also no health-related questions on the application. These policies typically have a low maximum death benefit ($25,000 or less) and a waiting period before the full death benefit is paid out, except in the case of death by accident. 

Since the insurance carrier does not have medical information to evaluate risk, no medical exam policies tend to be more expensive when compared to other types of life insurance policies.

Additional Factors That Impact the Final Cost of No-exam Life Insurance 

  • Smoking status: For a simplified-issue policy, being a smoker can significantly increase the policy cost.
  • Death benefit: Generally, higher death benefits increase costs.
  • Cash value: Policies with a cash value component may be more costly than those without.

Cost of No-exam Life Insurance  

On average, a 50-year-old man who is a non-smoker can expect to pay about $34 per month for a $100,000 simplified issue life insurance policy with a 20-year term. The same individual pays about $137 per month for a guaranteed issue policy with a $25,000 death benefit.  

Group Life Insurance  

Group life insurance is offered by an employer or labor organization to its workforce. The cost of group life insurance tends to be lower than for policies purchased individually since the insurance carrier can spread the risk out over a larger number of covered individuals. 

These policies do not require medical exams or underwriting, ensuring employees and group members can get coverage regardless of their health status. The value of the death benefit is typically limited to a set dollar amount or a percentage of the employee’s annual salary. 

Additional Factors That Impact the Final Cost of Group Life Insurance

  • Average age: The average age of the group members can impact the cost of coverage. Generally, the lower the average age, the lower the premiums.
  • Group size: Larger groups allow the insurance carrier to charge lower premiums since the risk is spread out over a larger number of covered individuals.
  • Claim history: For large employers or organizations, the claim history of the group as a whole may impact the cost of premiums.
  • Add-on benefits: Adding extra coverage to a group life insurance policy typically increases its cost.

Cost of Group Life Insurance  

The cost of a group life insurance policy is typically subsidized by the employer. In some cases, employees can receive coverage at no out-of-pocket cost or for just a few dollars per month. For life insurance policies with death benefits over $50,000, a portion of the premiums paid by the employer are taxable as W2 income. 

Life Insurance Policy Add-ons: Riders and Endorsements

Riders and endorsements can be used to add extra coverage and benefits to a life insurance policy, typically for an additional cost. The add-ons available may depend on the carrier and the policy type. Here’s a look at some common options:

  • Accelerated death benefit: This allows the insured to use the death benefit while living if they are diagnosed with a terminal illness that is expected to significantly decrease their lifespan.
  • Waiver of premium: This waives future premiums if the insured is permanently disabled or unable to work due to an illness or injury before reaching a specified age.
  • Guaranteed insurability: This allows you to purchase additional coverage within a specified period without another medical examination.
  • Accidental death: This pays out an additional death benefit if the insured dies as a result of an accident.
  • Child rider: This provides a death benefit if a covered child dies before a specified age.
  • Long-term care rider: This provides monthly payments if the insured has to receive home healthcare or stay in a nursing home.
  • Return of premium: This pays you back some or all of the premiums you’ve paid if you outlive the policy term.

Other Life Insurance Costs  

In addition to the recurring policy premiums, there may also be other one-time costs associated with purchasing a life insurance policy. Some examples include:

  • Policy fees: Your insurance may charge a small administrative fee that’s rolled into your standard premium.
  • Underwriting fees: The insurance company may pass some of the costs involved in the underwriting process as a fee. 
  • Surrender charges: Permanent life policies may deduct a specified amount from the policy’s cash value if you cancel the policy before the end of the specified surrender period.

So Is Life Insurance Worth It?  

In many cases, the cost of purchasing a life insurance policy is well worth it when you consider the financial security it can provide. Remember that your coverage needs typically change as you go through various stages of life, making it important to evaluate your coverage and make adjustments as necessary periodically. For instance, you may not need much life insurance at age 25 with no partner or dependents, but your requirements will change drastically at 40 with a spouse and three children.

How to Best Save On Life Insurance Costs  

While life insurance is important, few people want to spend more than necessary. Taking the following steps can help you minimize your overall costs.

Ensure You’re in Optimal Health Before Applying  

Since your health can significantly impact life insurance costs, ensure you’re as healthy as possible before applying. For some, this may mean quitting smoking, changing your eating habits, or exercising more. Remember that underwriting typically involves checking your blood pressure, cholesterol, and weight.

Assess How Much Coverage You Need  

Your current life stage impacts your coverage needs. For example, if you have a partner or young children, you may need additional coverage to provide for their needs. As you begin to earn more, a higher death benefit may be needed to replace your salary. Once your children are grown, and your debts are paid down, you may find that you no longer need as much coverage as you once did.

Consider Bundling Other Insurance Policies

Some insurance carriers offer discounts for purchasing multiple types of insurance from them. For example, you may consider checking with your auto, homeowners, or health insurance carrier to see if they offer life insurance and if bundling discounts are available. If you own a business, you may also be able to bundle your life insurance with your business insurance coverage.  

Shop Around for Favorable Rates  

Rates for the same insurance coverage may vary significantly among carriers, making it important to shop around. Getting a few quotes can help you assess your options and choose a carrier that fits your needs and budget.

Consider Paying Annually Instead of Monthly

Many insurance carriers offer a discounted rate for paying annually. If you’re currently paying monthly or quarterly, ask your carrier how much you can save by making this change.

Putting It All Together  

Life insurance is an important type of coverage for many individuals and families. There are a variety of policy types available, each with its own costs. When determining the cost of coverage, carriers typically consider important factors such as your age, sex, occupation, hobbies, health, and habits.

Understanding the other factors that go into the cost of life insurance, such as the death benefit, insurance type, and riders, can help you optimize your policy and keep your costs in check. It’s also helpful to make sure you’re in optimal health before applying for life insurance and to periodically review your coverage to make sure your current coverage is still appropriate for your needs.

Plan for your family’s future. Get a life insurance quote today.

Get a Quote

Plan for your family’s future. Get a life insurance quote today.

Get a Quote