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Having adequate life insurance allows you to financially support your loved ones in the event of death. Life insurance costs depend on several factors, such as your age and health, as well as the amount of coverage you need. (iStock)

Life insurance is a financial contract between a life insurance company and the contract holder. It financially protects your loved ones when you die by paying them a fixed amount of money. With a life insurance policy, you pay monthly premiums in exchange for a guaranteed amount of money paid to the beneficiaries of the policy after your death.

You can choose whole life or term insurance. Whole life insurance provides lifetime coverage to beneficiaries, while term life insurance provides coverage for a specified period. Insurers offer life insurance for varying durations and amounts of coverage.

If this is your first time to buy life insurance, or if you already have it and are wondering if you have enough, this guide will help you understand how to do it.

How much does life insurance cost?

The amount of life insurance costs varies depending on several key factors, such as your age, gender, medical condition, and the type of policy.

Let’s look at some examples to see the differences in insurance costs by age.

Here are the average monthly premium costs for a 20-year term policy worth $ 500,000 for a healthy Georgia man who does not smoke, according to Policygenius, an online insurance marketplace in partnership with Credible:

  • 23 years old – $ 24
  • 33 years old – $ 25
  • 43 years old – $ 45
  • 53 years old – $ 107

The costs are slightly lower for women, as women have a longer life expectancy.

  • 23 years old – $ 19
  • 33 years old – $ 21
  • 43 years old – $ 37
  • 53 years old – $ 81

As you can see, the costs increase dramatically as you get older.

Whole life insurance policies are generally more expensive than term life insurance policies because they are designed to last your entire life. Here are the average monthly premium costs for a whole life insurance policy worth $ 500,000, according to Policygenius:

  • 20 year old male – $ 303
  • 30 year old male – $ 421
  • 40 year old male – $ 652
  • 50 year old male – $ 1,057
  • 20 year old girl – $ 249
  • 30 year old female – $ 374
  • 40 year old female – $ 523
  • 50 year old female – $ 837

You can compare quotes from multiple insurers through Policygenius, an online marketplace in partnership with Credible.

Why is whole life insurance more expensive than a term policy?

In addition to lasting longer, whole life insurance also has a cash value component. This component works like an investment account, where your money grows tax-free for the life of your policy. This money can be used to take out a loan or it can be withdrawn (to a point) if you need the funds. Your monthly payments are used for both the death benefit and this cash value, so the rates are higher.

There are also management fees, because the fund managers oversee this component of the cash value for you, and these are built into your premiums. These fees add up, especially over the life of the loan.

How are life insurance rates calculated?

Insurers take into account several data points when calculating insurance costs to assess the degree of risk you represent as a policyholder. Some of the factors that insurance companies look at when setting insurance premiums include:

  • Type of life insurance – As mentioned earlier, whole life insurance generally costs more than a term insurance policy. The cost of the bonuses may also vary depending on the length of the mandate.
  • Age – The older you are when you take out a policy, the more it will cost you. Life insurance rates typically increase 4.5% to 9% each year.
  • Kind – Because men have a shorter life expectancy than women, they are considered to be of higher risk and generally have higher premiums than women.
  • Health – The health of the policyholder is a major factor in determining costs. Insurance companies often require applicants to pass a medical exam or complete a health questionnaire before being approved for a policy.
  • Way of life – Insurance companies will also ask questions related to high risk activities, such as smoking, before setting premiums.
  • Job – Your profession also plays a role in insurance costs. People working in more dangerous occupations tend to have higher insurance premiums.

Since your health is such an important factor in your life insurance rates, insurance companies often classify policy owners into different classifications based on their health. Here are some of the common insurance classifications:

  • Super favorite – Some insurers call it Preferred Elite, Preferred Select or Preferred Plus. This is the highest classification and is reserved for people in excellent health who have the ideal height-to-weight ratio and a clean family medical history.
  • Prefer – The privileged status generally describes people in very good health with only minor health problems.
  • Standard Plus – This classification is intended for people in good health and with a good family medical history but who may not have the ideal height / weight ratio.
  • Standard – Individuals classified as Standard do not have the ideal height-to-weight ratio and have a more complicated family medical history.

People who achieve Super Preferred status are generally entitled to the lowest possible insurance premiums. Any health issue or family health history issue would bring you down to a lower classification and subsequently lead to higher insurance costs.

Some insurers have another classification for people who do not meet the requirements of the standard, called lower ratings or table ratings. This is called because your bonuses are then factored on the basis of a table scoring system. Below-standard insurance rates usually take the standard rate and add a specific percentage depending on where you stand on the table. Standard and sub-standard classifications generally carry the highest insurance premiums.

Factors That Do Not Affect Life Insurance Rates

It may seem like every aspect of your life goes into the cost of life insurance, but there are some factors that won’t affect how much you pay:

  • Number of beneficiaries – Having multiple beneficiaries does not affect costs, only who receives benefits in the event of death.
  • Number of life insurance policies – People can take out multiple life insurance policies for various reasons. Having more than one policy won’t affect your rates, although it may cost more to have multiple policies overall.
  • Your location – Unlike other types of insurance, the city and state in which you reside is not factored into the cost of premiums.

You can get free quotes from the best life insurance companies through Policygenius, a credible partner.

How Much Life Insurance Do I Need?

The amount of life insurance you need varies from person to person depending on several factors, including:

  • Returned – One of the main uses of life insurance is to replace income lost on death. You need to choose an insurance policy that is large enough to replace your income.
  • Debt – Beneficiaries can use life insurance to pay off their unpaid debts. If you have significant debts, you may want to take this into account when choosing the policy amount.
  • Family – Do you have a spouse or children? If so, think about what financial support they might need for future expenses.

Experts generally recommend having life insurance coverage that is 10 to 15 times your annual income, but again this differs on a case-by-case basis. In some cases, you can add coverage later, which will increase your premiums. The additional coverage is known as the insurance rider.

Determine how much money you think your dependents (if any) will need. If you are married, talk to your partner about what they think is the best option. Ultimately, you should have enough life insurance coverage to take care of your loved ones financially if something unexpected happens to you.

When to take out life insurance?

People often buy life insurance after reaching important milestones in their life, such as getting married or having a child. In times like these, you often realize that you now have other people who depend on you financially.

The point is, you can buy life insurance anytime you want. You don’t have to be in the midst of major life changes to think about the future and what will happen if you leave. Keep in mind that waiting until later in life to register could mean paying higher insurance premiums. But it can still be beneficial not to take out life insurance, especially if you get married or have children later in life.

How to take out life insurance?

You can often get free or discounted life insurance through your employer. Check with your supervisor or your company’s human resources department if this is an option.

You can also get personalized life insurance quotes online from the websites of different insurers. Some insurers allow you to check rates instantly by providing basic information about yourself, such as your age, medical condition, and the type and amount of coverage you are looking for. When it is time to purchase a policy online, some providers may wish to perform a health exam, while others may only require you to complete a medical questionnaire.

When purchasing life insurance, be sure to ask questions about anything you are unsure of. Always read the fine print to make sure you are familiar with all the terms and conditions of your insurance policy before signing a contract.

When you’re ready to buy life insurance, compare quotes from multiple companies through Credible Partner Policygenius.