Know the Factors that Go in Pricing Life Insurance
When people think of buying life insurance, one of the first questions that comes to mind is how much it costs. There’s no one-size-fits-all answer. The cost for life insurance varies greatly depending on a number of factors, and knowing these factors can help you get the most bang for your buck and have a rough idea of what costs to expect.
How Does it Work?
Before getting to the costs, understanding the entire quote process can be illuminating. It all begins with insurance geniuses called actuaries, who crunch the numbers and figure out exactly how much the insurance companies should charge to ensure they don’t lose money on their policies overall, including the extra charges needed to cover every risk factor imaginable. An underwriter then takes that information, applies it to a specific applicant — that’s you — and provides a quote based on your unique situation and risk factors. Finally, an agent works with you to explain the costs and options, gets you covered appropriately, and provides support as your life changes.
What Are the Risk Factors?
When it comes to life insurance, anything that makes you more likely to pass away sooner than later — even slightly so — will require the underwriter to raise your life insurance costs. The following factors are common.
Age
The younger you are, the cheaper life insurance will be. This is probably the most significant factor in determining your rate.
Gender
Men have a shorter life expectancy than women, so rates are generally higher for men.
Current Health
Healthier people live longer, and are cheaper to insure. If you’re significantly overweight, have a chronic illness or you’re a smoker, it definitely will cost you more to get life insurance.
Family Health History
Even if you’re healthy now, if your family has a history of cancer, heart attacks or other serious health issues, it will negatively affect your rates.
Occupation
Risky jobs, such as construction, logging and farming, may increase your rates compared to having a relatively safe desk job.
Risky Hobbies
Scuba diving, skydiving and auto racing are the type of risky hobbies that definitely cause an increase in your rates.
How Much Does Life Insurance Cost?
Despite the many risk factors that insurance companies consider, life insurance is one of the most reasonably priced types of insurance coverage. For example, a 30-year-old with an annual salary of $50,000 can buy a life insurance policy of $500,000 for about $50, if this person is healthy and doesn’t have many risk factors. Note this lower cost life insurance is for term life insurance, not whole life insurance, which can be much more expensive. Learn more about the differences between whole and term life insurance policies.
How to Get the Best Coverage and Price
Unfortunately, there is not a lot you can do to save big on life insurance in the short term. Your age and family health history are obviously set in stone, and many of the other risk factors are difficult to change rapidly.
There are some steps you can take to lower your costs over the long term, however.
For example, long before shopping for new life insurance policy, quit smoking and try to improve your overall health, switch to a safer career or quit risky hobbies. In addition, shop around. One insurance company may see you less risky than another. Finally, bundling your life insurance with your home and car insurance policies also can help you save.
Ready to check your life insurance options? Get in touch with a trusted agent today.
– Written by Matt Forrest, last updated in January 2023.
