Life insurance is one of the most important purchases a person can make to provide peace of mind and protection for their loved ones. But there's no reason to pay more than necessary for coverage.
It's a good idea for those shopping for insurance coverage to understand the factors that impact the cost of insurance premiums. In particular, there are three big things insurers consider when estimating how much a life insurance policy will cost. Here's what they are.
1. The policyholder's age when they purchase coverage
Younger people tend to be in better health than older people. Statistically, they have more years left in their lifespan and a reduced risk of passing away during their term of coverage. As a result, buying life insurance as a young person will generally result in lower premiums than waiting until later in life.
When buying term life insurance as a young person, premiums could end up costing just a few dollars a month. It is, however, important to make sure the coverage term is long enough to provide protection for a sufficient number of years.
For example, a 20-year-old buying a 30-year term policy would have coverage only until age 50, so they may want to opt for a 40-year coverage term if their insurer offers it or ensure they can renew the policy later if necessary.
2. The amount of the death benefit
When a policyholder purchases insurance coverage, they must decide on the amount of the death benefit. That's the money that will be paid out to beneficiaries. Policyholders need to make sure the death benefit is large enough to replace their income for the requisite number of years or to provide for other financial needs their loved ones may have.
Generally, policyholders will want to do a personalized calculation that takes into account the income that must be replaced, the cost of repaying a family mortgage, the costs of raising and educating children, debt repayment costs, and funeral costs when deciding how large a death benefit should be. An easy way to estimate life insurance needs, though, is to simply assume a policyholder will need 10 times their annual income in coverage.
Regardless of what method is used, it's important to know that a higher death benefit will result in higher premiums. For that reason, policyholders shouldn't purchase more coverage than is necessary to provide protection.
3. The policyholder's health status
Health status is a crucial consideration when life insurers set premiums. People with serious pre-existing conditions such as diabetes or heart disease are more likely to pass away during the term of coverage, and are thus going to face much higher premiums if they are offered coverage at all.
Buying life insurance while still healthy can help consumers avoid high premiums and can also help ensure they are able to get covered. While there are some guaranteed-issue policies available regardless of health status, most insurers ask detailed questions about medical status and even require a physical to assess an applicant's health conditions. Someone who smokes or has medical issues is going to pay a lot more.
Ultimately, buying insurance while young, before medical problems develop, and purchasing an appropriate amount of coverage -- but not too much -- will enable consumers to get the lowest possible premiums for the important life insurance protection their families require.
Life insurance premiums are always unique to the individual applying for coverage. That means even if twin sisters apply for the same life insurance plan, they will each receive different quotes.
Sure the twins are the same sex, same age, same weight, and may even have very similar health histories. However, they are still individuals and each will be evaluated based on their own life insurance risk factors.
Life insurance premiums are generally based on three factors — age, gender, and physical condition. That last category is one of the life insurance factors that can vary a lot (and widely affect) life insurance pricing.
For example, tobacco use falls under the physical condition factor. You may be surprised to learn that a smoker can pay as much as THREE TIMES the amount of their non-smoking peers.
Let’s take a peek at life insurance factors that affect premiums.
Our independent agent matching tool will find you the best insurance solution in your area. Tell us what you're looking for and we'll recommend the best agents for you. Any information you provide will only be sent to the agent you pick.
Age Isn't Just a Number
In terms of having fun, age really is just a number. However, when it comes to life insurance premiums, you’ll find it’s actually the most significant cost factor for life insurance. The reason why is pretty simple: the younger you are, the less likely (statistically speaking) you are to die. Lower risk equals lower premiums.
Adam vs. Eve
Gender is one of the biggest life insurance pricing factors. Why? Well, the average age expectancy of a US female is 81 years versus 76 years for a US male.
This simple difference of five years means an insurance carrier is more likely to pay a male death claim sooner (rather than later). It also means the female applicant will usually get a lower premium based strictly on gender.
Physical Health
This category is made up of six individual cost factors for your life insurance. The severity of each item listed below will affect your life insurance premiums by 100%.
Weight: A recent study showed that weighing a third more than your ideal weight might knock three years off your lifespan. Life insurance companies have known this for years. That’s why the higher your BMI then the larger your monthly life insurance costs.
Current Health: Life insurance applications require you to answer questions about your current state of health, as well as (in some cases) submit medical records.
Insurance companies want to know if you are being treated for any medical conditions that could increase your chance of death. Even chronic health issues that are under control via prescription medication are still a life insurance pricing factor.
Health History: Insurance carriers will also review your past hospitalizations, surgeries, and diagnostic tests for a hint of any major health concerns. It’s another way for the life insurance company to determine if you are a higher risk of serious illness.
Smoking: It should be no big surprise that using tobacco is perhaps the biggest factor that affects life insurance premiums. According to the Center for Disease Control (CDC), the overall mortality rate for US smokers is about three times higher than their non-smoker counterparts.
Bottom line: Life expectancy for smokers is a minimum of 10 years shorter than for nonsmokers. Keep in mind, if you buy a life insurance plan today and eventually do quit smoking, then you may qualify for a premium reduction. It’s best to work with your independent life insurance agent for help in navigating this type of re-evaluation.
Drinking and Drug Use: The amount of alcohol you consume will be questioned by the insurance carrier. Basically the company wants to know if your drinking falls within the “low risk” drinking guidelines established by the National Institutes of Health. The life insurer will also explore your drug use (or lack thereof) to figure out if you are clean and sober.
Family Medical History: Many medical conditions are hereditary like certain cancers and neurological disorders, so a family history of such ailments could mean high insurance costs.
Save on Life Insurance
Our independent agents shop around to find you the best coverage.
Request a quote
Lifestyle Choices
In all honestly, the manner in which you live your life can increase your risk of death and your premium. If you participate in high-risk sports or a dangerous job, then you’ll probably pay more for life insurance.
Occupation: If your work consists of dangerous job duties or exposes you to toxic chemicals, then you may be at a higher risk for death. That’s why police officers and firefighters pay more for life insurance than school teachers or pastors.
Marital Status: This factor doesn’t necessarily affect your life insurance premiums, but purchasing a joint policy with your spouse could get you a discount.
Hobbies: Treacherous activities like skydiving, mountain climbing, or piloting a plane increase your high-risk profile. As you’ve learned by now, a high-risk interest will typically result in higher premiums than it will for your homebody neighbor.
Driving Record: Multiple moving violations, higher risk auto accidents, and suspensions are also factors that affect your life insurance premiums. That includes past suspensions and DUI/DWI charges.
Foreign Travel: Certain countries are considered significantly more dangerous for tourists than other nations. So if you travel on a regular basis to one of those risky regions, be aware your life insurance premiums may be affected as a result.
The Policy Matters Too
The type of life insurance policy and the benefit amount are two additional life insurance factors that will affect your premium. In a nutshell, the longer your term or the larger the amount, then the larger your premium payment will be each month.
Talking with an independent life insurance agent will give you plenty of options and better explain the possible outcomes.
Save on Life Insurance
Our independent agents shop around to find you the best coverage.
Request a quote
Don’t Try to Memorize the Factors
We’re so proud of you for doing the research on what factors impact the cost of life insurance. Knowledge is power, you know.
In reality, we also know you’re pretty darn busy with work and family. So who has time to memorize the factors and navigate life insurance applications on their own? Not you!
Instead of going it alone, contact one of our independent life insurance agents for assistance. We guarantee they are professionals who understand life insurance cost pricing factors and can help you find the best option.