What Goes Into the Cost of Life Insurance?

Life insurance can protect your loved ones after you pass away. Peace of mind that your family will be financially protected often outweighs the premium cost of your life insurance policy. 

But what types of factors are considered in your life insurance premium payment? As you apply for life insurance, it’s important to keep these things in mind to get the best policy for you and your family and an affordable premium payment. 

Understanding Life Insurance Premiums

An insurance premium is the payment a policyholder makes to their insurance company regularly to maintain their insurance coverage. Premiums are usually paid monthly to keep your policy in effect. It also serves as financial protection if something unexpected happens. 

With life insurance, there are two different types of policies: term life insurance and whole life insurance. With term life insurance, you’ll only pay the premium through the end of your term, but if something happens after you term, your beneficiaries may not be protected. Some term life insurance policies will renew after the term, but your insurance premiums may increase each year after the initial premium period. 

If you decide to go with a whole life insurance policy, you pay premiums  every month based on the type of policy you choose. For example, you can spread out your monthly premium payments until you are 65 or you could pay a higher premium for 10 to 15 years and be covered for life. If you were to pass away unexpectedly, your loved ones would be financially protected because there is no term expiration. 

Premium payments are often based on the coverage amount, policy type and other risk factors. For example, a term policy is for a shorter amount of time, so the premium payments are usually less than a whole life policy. 

Key Factors That Affect Life Insurance Cost

There are quite a few factors that can have an impact on a life insurance premium. Here are some things to consider when obtaining a life insurance policy.

Age and Its Impact on Life Insurance Rates

Your date of birth and how old you are is often a top factor in your life insurance premium payment. As you get older, life insurance increases because an insurer is more likely to pay out your policy. You’re also healthier when you are younger, meaning younger policyholders usually get a better rate. 

Health and Medical History

Another top factor in your life insurance premium cost is your health history. People with a history of medical conditions, especially serious or chronic illness like heart disease or cancer, usually have a higher premium payment. 

In some scenarios, insurers require a medical exam to obtain a life insurance policy. In this medical exam, they will look at your cholesterol levels, blood pressure and other metrics that could indicate future health issues. Not participating in a medical exam could also impact your life insurance cost. 

With or without a medical exam, your medical eligibility will have an impact on your life insurance payment.

Policy Type and Coverage

Whole life insurance and term life insurance can protect both you and your loved ones, but the cost of your premium payment may differ depending on the policy. 

Term life insurance policy premiums are often lower because the premiums are fixed for the policy’s term — a set number of years. Term life insurance is often more attractive for younger people and younger families because of the lower cost. However, if you decide to continue your insurance policy after the term has ended and convert to a whole life policy, your premium may increase. 

Whole life insurance is often referred to as “traditional” or permanent life insurance. The coverage lasts your entire lifetime if your premiums are paid. The premiums remain the same, so they won’t increase as you grow older. Whole life policies accumulate a cash value as you pay your premiums. Because premiums don’t increase, getting a policy at a younger age will result in lower life insurance premium payments.

How to Find the Right Life Insurance Policy for Your Budget 

As you grow older, it’s possible your life insurance needs change over time. Your rates and costs can differ depending on your age, family situation, health history and even if you have other coverage on your policy. No matter what limit of coverage you choose, life insurance premiums are almost always lower when you’re younger and healthier. Using our life insurance calculator may help you determine how much coverage you need or what policy may be best.

Protect Your Family’s Future — Start Today 

Choose a life insurance plan that works best for your family and loved ones today by consulting with a local Farm Bureau agent.