The decision to get life insurance is an important one. After all, life insurance protects the people who matter most to you. And, certain policies offer additional benefits that can strengthen your financial plan throughout your life.
But how much do life insurance premiums cost? Life insurance costs vary based on the type of policy, the size of the death benefits, and the personal characteristics of the insured person. Age, health, gender, medical history and lifestyle factors can all affect insurance rates. While many factors are beyond your control, making healthy choices such as quitting smoking and losing excess weight may eventually help you qualify for better life insurance rates.
The type of policy that you get will also have a big impact on costs. For the same amount of death benefit, term life insurance (temporary coverage) is typically less expensive than whole life insurance (coverage that lasts for your whole life as long as you pay required premiums. Here's what to know about term and whole life insurance costs.
How life insurance rates and premiums are determined
It sounds a little morbid, but life insurers set rates and premiums based on the likelihood that you'll die in each year that your policy is in effect. As such, premiums tend to be lower for younger, healthier people than older folks with certain medical conditions, but factors like lifestyle and the type of policy can also impact how much you will pay in premiums.
Current age and health
Your age and health will be compared to historical statistics of how long other people of a similar age and health lived. Based on that data, actuarial tables are used to help insurance companies calculate your life expectancy.
Gender affects life insurance premiums because women statistically live several years longer than men, so a woman has a higher life expectancy. In many places this means women may pay a little less than a man with similar health history for a comparable policy, but there are some states that require insurance companies to disregard gender as a factor.
Your hobbies and job
The rate of fatal accidents among scuba divers is higher than the general population, and the same goes for pilots. If your job or hobby put you at above average risk of early death, your life insurance premiums may cost more than average.
The higher your death benefit, the more your life insurance policy will cost.
Term life insurance: term length
A term life policy only pays a death benefit if you die during the term. Since your odds of dying go up with time, a life insurance policy with a shorter term has lower monthly premiums than a policy with a longer term.
Term life insurance premium costs
A term life insurance policy might cost less than $20 per month for a healthy, non-smoking woman who applies at age 25, but a woman who applies at age 50 could pay substantially more. Term life monthly premiums are generally lower than whole or universal life premiums.
Impact of age on term life costs
The cost of term life insurance is based partially on your age. With some policies, your yearly cost will increase as you get older. With a level term policy, the cost is leveled over the term so that you pay the same amount each year.
Impact of gender on term life costs
Women live longer on average, so in many cases their life insurance costs per month are, on average, lower than premium costs for men. This would not apply in states where gender is not a factor in life insurance rates.
Impact of health conditions on term life costs
Any condition with the potential to shorten your life may increase what you pay for life insurance.
Health conditions that raise your rates include smoking, obesity and uncontrolled high blood pressure, among others. If you have a life-threatening illness such as terminal cancer, you may not qualify for term life insurance at all.
Term life insurance that doesn’t require a medical exam or health questionnaire — typically a group plan that’s offered through an employer — may provide coverage for people with medical conditions.
Impact of term lengths on term life costs
On average, a level term policy with a shorter term (such as 10 years) will cost less per month than a longer term (such as 20 years). That’s because the longer the term, the more you pay up front for the increased cost in later years.
Converting term life to whole life insurance
Once you go through a medical exam to get term life insurance, many life insurance companies allow you to convert your term insurance to whole life insurance in the future with no additional medical exam required. When you’re young, a large term policy can be a budget-friendly way to get a large death benefit. However, as you get older, your financial situation will often change and whole life insurance — with the additional benefits it offers — may make more sense. In most cases, term life policyholders can convert their term life insurance policies to whole life policies.
Whole life insurance premium costs
For the same death benefit, Whole life insurance premiums are generally more expensive than term life premiums. That’s because of two key differences between term life and whole life. First, whole life insurance doesn’t end like term insurance does. So long as you keep your policy in place, it will pay a death benefit someday. In addition, whole life insurance includes a cash value component that may be guaranteed to grow over time and can grow even faster if you select your dividends go towards you cash value.
Where a term life policy could be a sunk cost after the term expires, the cash value that accumulates in a whole life policy will create value for you and your family.
Impact of age on whole life costs
As with term life policies, the age that you purchase whole life insurance will impact the cost of your monthly premiums. The younger you are, the lower your premiums will be. And, once you get a whole life policy, your premiums won’t change as you age, even if you develop a medical condition.
If you’re in good health, the cheapest rates you can get are the ones you qualify for today.
Impact of gender on whole life costs
Generally, as women tend to live longer on average, whole life premiums for women are typically lower than a man who shares the same age, lifestyle, and health.
Impact of health conditions on whole life costs
Any health condition that could impact your lifespan may affect your insurance rates when you are purchasing a life insurance policy.
Heart disease, diabetes and cancer are some of the conditions that could make whole life insurance more expensive for you. Your family’s health history may also be a factor, because your likelihood of a shorter than normal lifespan increases if close family members had life-threatening illnesses that are known to be hereditary.
However, once you lock in a whole life insurance policy, your premiums will never change as long as the policy stays in force, even if you later develop a medical condition.
The benefits of whole life insurance maybe be worth the monthly cost
Whole life insurance is a valuable part of your financial plan, with benefits beyond the payout at your death.
Whole life includes a cash value component that grows over time and can be used for any reason1.
Another benefit is the likelihood of dividends being paid to holders of whole life insurance policies. While dividends are not guaranteed, Northwestern Mutual has paid annual dividends every year since 1872.
How much will your life insurance premium cost?
Your life insurance premium will be based on the details of the policy you choose and your personal characteristics.
The best life insurance policy is the one that plays the role you need it to play in your financial plan, and a financial advisor can set up a policy that works best for you.
RELATED CONTENT: Our Life Insurance Guide can help you learn more about life insurance and how it can benefit your financial plan.
1The primary purpose of permanent life insurance is to provide a death benefit. Using cash values through policy loans, surrenders, or cash withdrawals will reduce benefits and may affect other aspects of your plan.