How Much Does Life Insurance Cost?

A common misconception about life insurance is that it’s unaffordable. In fact, according to the 2021 LIMRA and Life Happens study, most people overestimate the cost of life insurance by up to three times! Younger generations were especially susceptible to believing this myth. For example, a healthy 30-year-old millennial is likely to pay $165 per year for 20-year term life insurance, but 44% estimate it will cost over $1,000. 

Costs for life insurance can vary greatly from one company to another, even for the same amount of coverage. But, in reality, life insurance can fit within most budgets. The key, however, is understanding how premiums are determined and what other fees and charges are associated with life insurance policies. Having this information will allow you to make an informed decision about what’s best for you and your family — while also avoiding hidden costs.

What is a Life Insurance Premium?

Before getting too far ahead of ourselves, let’s quickly define what a life insurance premium is.

The term “premium” simply refers to a payment. More specifically, the premiums you pay to your life insurance company represent the cost of your coverage. As a consequence of your unexpected death, the insurance company would pay your beneficiaries the payout, which is also called a death benefit.

Your family will no longer receive life insurance protection if you fail to pay your premiums. Because of this, it’s so vital to find a plan whose premiums, or payments, you can actually afford. And, in most cases, you’ll pay a premium annually, quarterly, or monthly. 

How Are Life Insurance Premiums Determined?

It’s up to the underwriters of each insurance company to determine how much the policy will cost. In order to estimate your insurance risk, they consider several factors, including your age, current health, and family medical history. Various methodologies are used by different companies. As such, this can affect the amount they’re willing to cover and how much it will cost you. 

A company’s financial strength, level of service, and flexibility of products can also determine how much it will charge for a policy. Additionally, the policy may have a higher average cost due to these attributes. But their overall value is increased as a result. 

In short, if you’re evaluating a policy’s overall value, you should always take into account all of the factors listed above.

How Much Does Life Insurance Cost on Average?

“As part of incorporating it into your financial strategy, you may want to know ‘how much does life insurance cost?’,” writes Cynthia Paez Bowman for Bankrate. “The following numbers are supplied by S&P Global Market Intelligence and demonstrate an example of term life insurance prices from four major life insurers for healthy, non-smoking policyholders.”

 

Age

According to S&P Global Market Intelligence, rates for $250,000 of term life coverage by age are also available as follows:

 

AgeAverage female quoteAverage male quote
25$18.59/month$22.67/month
30$19.79/month$23.49/month
35$22.95/month$25.72/month
40$29.63/month$34.74/month
45$41.75/month$51.42/month
50$60.68/month$81.23/month

 

Life insurance costs tend to increase substantially after age 45, so it’s important to be aware of this, advises Paez Bowman. A policy that is bought when a person reaches middle age or retirement will typically cost more than if it is purchased when they are younger.

 

Gender

In order to see how gender impacts claims, both of the following policyholders are 35 years old and are seeking a $250k death benefit from a 30-year term policy.

 

Life insurance companyAverage cost of life insurance for 35-year-old femaleAverage cost of life insurance for 35-year-old male
RiverSource$22.09/month$24.72/month
State Farm$28.07/month$30.02/month
Nationwide$20.34/month$23.63/month
Mutual of Omaha$21.29/month$24.51/month
Average cost$22.95/month$25.72/month

 

It’s clear that a man pays approximately $2.80 more per month than a woman for life insurance, adds Paez Bowman. This adds up to a bit more than $1,000 over the course of a 30-year policy. What’s more, rates are the same regardless of the company’s size.

 

Insurance Rates By State

The price of your life insurance can be affected by variables unique to you, as with other types of insurance. Geographic factors such as your neighborhood do not influence the price of life insurance. Still, it’s possible to find slight variations within the U.S. in life insurance. While regulation may vary by state, average rates in each state may just reflect slight differences in provider rates or coverage amounts, she states.

According to S&P Global Market Intelligence, this is the average price of term life insurance per household in each state of the U.S.:

 

StateAnnual life insurance premiumAverage monthly premium
Alabama $602$50
Alaska$655$55
Arizona$615$51
Arkansas$584$49
California$668$56
Colorado$645$54
Connecticut$724$60
Delaware$657$55
District of Columbia$636$53
Florida$627$52
Georgia$630$53
Hawaii$687$57
Idaho$597$50
Illinois$631$53
Indiana$593$49
Iowa$601$50
Kansas$601$50
Kentucky$599$50
Louisiana$597$50
Maine$641$53
Maryland$712$59
Massachusetts$718$60
Michigan$610$51
Minnesota$639$53
Mississippi$581$48
Missouri$590$49
Montana$601$50
Nebraska$603$50
Nevada$607$51
New Hampshire$708$59
New Jersey$732$61
New Mexico$588$49
New York$675$56
North Carolina$617$51
North Dakota$603$50
Ohio$599$50
Oklahoma$598$50
Oregon$627$52
Pennsylvania$658$55
Rhode Island$660$55
South Carolina$615$51
South Dakota $591$49
Tennessee$609$51
Texas$633$53
Utah$636$53
Vermont$655$55
Virginia$682$57
Washington$655$55
West Virginia$590$49
Wisconsin$607$51
Wyoming$601$50

 

How Are Life Insurance Premiums Determined?

Although the average cost of life insurance can give you a ballpark figure, it won’t be the exact amount you’ll pay. So, how can you get a more accurate quote? 

The process of calculating a premium may seem a little difficult and mysterious. In truth, it’s pretty straightforward how your life insurance company settles on your premium. It all comes down to one word; risk. 

In granting your policy, what is the insurance company risking financially? Answering that question will ultimately determine your premium. In short, the higher the risk you are, the more your premium is going to cost you.

How exactly does the insurance company determine your level of risk? By taking into account the following factors. 

Type of coverage. 

As we’ve previously discussed, there are several different types of life insurance. The most common types, however, are term life insurance and permanent life insurance.  As such, the cost of life insurance depends on the type of policy you choose. Ultimately, the type of policy you select will greatly impact the cost of your premiums.

Term life policies last for a specific period of time, usually 10, 15, 20, or 30 years. On the other hand, permanent life policies last for the rest of your life — assuming that you make your payments. The premiums for permanent life insurance are, as a result, much higher than those for term life insurance. This is particularly true if you’re young and healthy.

Generally, term life insurance offers the best value for most people who are healthy and young. In addition, young adults can benefit from term life’s flexibility. For instance, a 20-year term life insurance policy can cover you while your kids are still little and you’re paying off your mortgage. By doing so, you’re paying for coverage that’s specifically relevant to your unique needs.

Amount of coverage and term length. 

 

The premiums for term life policies also vary based on the length of your policy. To put that another way, it will cost more to insure for 30 years than 20 Years. That makes sense, since the longer the term, the more likely it is for the insurer to pay out a death benefit.

With that in mind, you should only purchase a policy for how long you need coverage. As an example, you plan to have your mortgage paid off in under 20-years. In the meantime, you could obtain a term life policy to protect your home just in case there’s a loss of income. In this situation, you would purchase a 20-year policy instead of a 30-year policy because this would add unnecessary insurability.

The other variable in this equation is the amount of coverage. Keeping your premiums low means avoiding over-insurance. In other words, even if you qualify for a million dollars in coverage at a bargain, but your family only needs $700,000 in coverage, then you’d be paying a premium that’s too high. 

What can you do if you don’t know how much coverage you need? Using a life insurance calculator will help you determine which policy is right for you.

Although it’s possible to easily and quickly buy quality life insurance policies thanks to online purchasing options, there are important details you should be aware of when picking a policy. An insurance rider is a perfect example of how a few extras can complicate the insurance buying process.

You can add riders to your life insurance policy to make it more customized to better suit your needs. There are times when an add-on is built into a policy and other times when it must be purchased separately.

The accelerated death benefit is one of the most common types of riders you’ll come across when researching life insurance policies. You may be offered this rider when purchasing an insurance policy by your life insurance provider. In some cases, this rider may be automatically included in your insurance policy, at no additional cost.

 

Age. 

Because younger people are farther from their potential life expectancy, their insurance rates generally reflect that. In other words, you’ll pay significantly more for a policy if you wait until your senior years to buy a life insurance policy. 

But, what if you feel that you’re too young for life insurance?

The general rule of thumb is that it’s much better to buy life insurance at an earlier age, especially if you’re considering permanent life insurance. You’re more likely to pass your physical exam more easily when you’re younger, and your rate may be lower, as well. Your monthly premiums will stay level if you lock in a permanent life policy at an earlier age too. So in the long run, paying such low rates could seem like a bargain for non-cancellable insurance.

 

Health. 

A major factor determining your insurance premiums is your health. You will face higher costs if you smoke, have pre-existing conditions, or have a family history of cancer or heart problems.

An examination may be required, questions may be asked about your health, and a physician’s statement may be required, this is called an Attending Physician’s Statement.

What if you have a medical condition?

Costs will vary depending on pre-existing medical conditions. The good news is that even if you have medical conditions like HIV, an insurance company may be able to still provide you with life insurance.

 

Gender. 

Men, assuming they are of comparable age and health when they apply for life insurance, will generally pay more than women due to their shorter life expectancy. It’s been found that in nearly all societies, women live longer than men. Women in developed countries are expected to live an average of 79 years, while men are expected to live an average of 72 years.

 

Occupation. 

Having a dangerous job can raise your insurance rates. Firefighters, roofers, pilots, fishermen, loggers, or crane operators are all examples of professionals in their respective fields. It’s best to do your research, come up with several quotes and deal with known, reputable companies if you want to lock in a competitive life insurance rate.

 

Hobbies and Lifestyle.

If you go out hunting, skydiving, motorcycle racing, hang gliding, mountain climbing on the weekend, you’ll have a much higher premium than someone who collects stamps.

 

Driving record. 

High rates are likely if your driving record is problematic.

 

The amount your loved ones would receive.

The amount of money your family would receive if you were to pass away is a key factor to consider when buying life insurance. If you choose a large policy, the beneficiaries will receive more benefits and you will pay more in premiums.

Based on your potential earnings, the insurance company may set a limit for what you can claim. The company may limit the coverage if the death benefits you are supposed to pay to your beneficiaries exceed your earning power during the term of the insurance policy.

You must supply all the information the insurance underwriter needs to assess the premium. A life insurance fact sheet is helpful before a contract is signed. Consider speaking with a financial professional when shopping for an insurance policy. They can help you sort out your options and recommend a reputable company. 

 

Additional Life Insurance Fees and Charges

It’s also important to know the policy fees and charges before you purchase a life insurance policy. Some industry-standard fees are deducted from your premium and cash value by insurance companies. That means the amount your benefices will receive is less than anticipated 

While this varies, here are the most common life insurance fees and charges you should be aware of:

  • Cost of insurance. This is what insurance protection actually costs. The amount of the death benefit depends on your age, gender, health, and life expectancy. Usually, this fee is charged once per month.
  • Premium loads/sales charges. Taxes and sales expenses are included in these charges. Before making the payment for the policy, you are charged for fees.
  • Administration fees. The policy maintenance fees go to pay for accounting and record-keeping costs. You usually pay administration fees once a month from the value of your policy. 
  • Monthly per thousand charge. Underwriting classification, age, and gender contribute to this charge. As the name implies, the fee is assessed on a monthly basis.
  • Surrender charge. Surrendering (terminating) your policy during the surrender charge period results in a deduction from your cash value. When comparing policies, make sure you look at the surrender charge period.
  • Mortality and expense risk charge. Your current age, gender, and health are used to estimate how long you’ll live and your risk level. In the event that you’re not alive at the estimated age, a mortality & expense charge is applied. Monthly charges are generally made for this service.
  • Fund management fees. The fund managers are compensated through these fees. Generally, fund management fees are deducted from your cash value and not directly from the shares of underlying funds.

 

Frequently Asked Questions About Life Insurance Premiums and Costs

How much does life insurance? 

You may be able to obtain affordable life insurance at work. In fact, many individuals can obtain term life insurance if employed by a quality company for surprisingly low prices — sometimes even free. Regardless if this is a workplace perk or not,  there are several factors that influence premiums, including:

 

  • Age, sex, height, and weight
  • Health status, such as if you smoke tobacco or have a pre-existing medical condition
  • Participation in high-risk occupations or hobbies

 

As you age, life insurance premiums get more expensive, and what you decide to cover yourself with will affect your policy. Permanent insurance policies are typically more expensive than term policies.

 

Is my premium tax deductible?

It may be possible to deduct mortgage interest, student loan interest, and donations to food banks on your income taxes. But, what about life insurance premiums? The answer is usually no.

However, there is some good news regarding life insurance and taxes. In most cases, the payout is tax-free if you die and your family files a claim. That means that there would be no taxes on that amount whether your policy covered $500,000 or $1 million.

 

Are premiums negotiable?

Term life insurance with full medical underwriting allows you to customize your premium depending on the information underwriters gather from your application, medical exam, and other databases.

If you’re looking for life insurance, you can explore your options as you can’t negotiate the price like you can with a flea market vendor. Be sure to keep an eye on the rating of the life insurance companies you choose. A company that is not rated well by independent rating agencies such as A.M. Best or Moody’s, is a red flag about the company’s to pay a claim.  

Do not forget there are a lot of things you can do to reduce your premiums before it goes through underwriting. Keeping a healthy lifestyle is important, as is selecting the right term length and coverage amount for your situation.

 

Will my life insurance quote match my premium?

You get a life insurance quote by providing some basic information, such as your age, gender, and health history. You can use this information to get a rough estimate of your life insurance premiums. A life insurance quote cannot be provided until the underwriting process is complete.

The reason? The underwriting can reveal something that you previously weren’t aware of. Perhaps your blood pressure is higher than expected. You may have received a couple of speeding tickets recently. If that’s the case, you’re considered a higher risk by the insurance company and your premium will therefore increase.

 

What does a life insurance company do with my premiums?

When you pay your insurance premiums, your insurer receives income. Typically, the income is used to operate the business on a day-to-day basis. As well as helping you financially, your premiums support other policyholders whose loved ones have passed away. Their remaining premium income becomes profit. 

 

How can life insurance be more affordable? 

You can save more money in the long run by keeping your premiums as affordable as possible by taking the following steps;

  • Buy it now. The older you get, the higher the premiums will be for the same coverage. The longer you wait, the higher your premiums will be, or you may no longer be able to acquire health insurance.
  • If you want permanent life but you’re on a budget, consider some term coverage for now. Buying a combination of term and permanent life can help you save money initially. In the future, if your budget increases, you might want to convert from term to permanent coverage.
  • Consider group life insurance offered through your employer. It may be relatively inexpensive. Remember, however, that your group coverage may cease or become more expensive once you leave your company or reach an advanced age.

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