How Much Does Life Insurance Cost?
The cost of life insurance is a deciding factor for many people when deciding whether or not to purchase a policy. We may feel invincible in our twenties, so why pay for something we don't require? Who needs another one when we're in our 30s and 40s, starting a family and facing mounting expenses? And, by the time we reach our fifties, life insurance is no longer as affordable.
The cost of life insurance is determined by a variety of factors, including your health and age. The benefits range from covering financial obligations to providing you and your loved ones with peace of mind. Regardless of your age or medical history, StrongInsurance will help you find the right policy with the right life insurance company at the right rate, no matter what stage of life you're in.
What Is a Good Life Insurance Rate?
If you're like most people, a good life insurance rate is one that's within your budget. Life insurance rates, or your premium payments, are determined by the underwriting of the life insurance company. Underwriting essentially assesses the likelihood of a loss that would trigger the policy's payout if the application is accepted. Mortality, interest, and expenses are the three most important factors that underwriters consider.
In life insurance, mortality reflects the insured's risk of death. The statistics compiled by the National Association of Insurance Commissioners (NAIC), known as the Commissioners Standard Ordinary table, are at the heart of the mortality factor (CSO). These statistics serve as a starting point for your policy's underwriting. Underwriters then classify your risk based on the information provided on your application.
Which Factors Affect Your Life Insurance Rate?
Factors that increase your risk of death cause insurance premiums to rise conditionally. Nonsmokers in good health with no negative medical history are eligible for lower-cost life insurance policies. Insurers may request a medical exam from applicants, and standard policy exclusions, such as operating an aircraft or working in a hazardous occupation, may prevent you from being accepted.
Furthermore, your age, gender, family medical history, and lifestyle all have an impact on the cost of your insurance policy. Interest is the next factor in insurance premiums. The higher the interest rate insurers can earn on your policy's investment, the lower the premium they must charge. Finally, expenses are factored into the calculation of your premium. This covers the expenses that insurers anticipate incurring, such as salaries and commissions.
Your life insurance rate is also affected by the type of policy you choose. Term life insurance is less expensive than whole life or permanent life insurance. Permanent life insurance provides coverage until the age of 120 and accumulates cash value, whereas term life insurance provides coverage for a set period of time. If you die while the policy is still active, the death benefit will be paid out. However, if you outlive the term length, the policy expires with no payout.
Underwriting Your Life Insurance Policy
Once insurers have gathered all of your information for the underwriting process, underwriters classify the risk and assign your premium using the judgement method or the numerical rating system. Only the information you provided and the underwriter's judgement are used in the judgement method.
For unfavorable factors, the numerical rating system assigns values called debits, and for favorable factors, values called credits. After that, the debits are added together, and the credits are subtracted. The resulting number is multiplied by 100, and this is the number used by underwriters to calculate your premium. A standard risk has a rating between 75 and 125; risks with ratings greater than 500 are uninsurable.
After you've decided on the type of policy you want and the underwriters have completed their work, your premiums may be higher or lower depending on how frequently you pay (monthly, quarterly, semi-annually, or annually) and the payment mode required by your life insurance policy.
Premium Payment Modes in Life Insurance
The frequency with which you pay your premiums affects the cost of life insurance. Due to administrative costs, paying your policy annually is less expensive than monthly, quarterly, or semi-annually. Furthermore, the type of policy you select, such as an increasing term life or universal life policy, may have variable premium payments that are flexible, increasing, or decreasing. Let's take a look at the various types of life insurance policies and their premium payment methods.
Universal Life
Universal life insurance policies are permanent policies that include savings and investment features that allow policyholders to increase or decrease premiums or skip paying premiums entirely. When the policy's investment and savings features accumulate cash value, it can be used to pay premiums. These policies are intended to meet your changing life insurance requirements over time.
Decreasing and Increasing Term Life Insurance
A decreasing term policy is a type of life insurance policy that is intended to cover financial obligations such as credit card debt. As your debt is paid off, your premiums will decrease until your balance is zero. The inverse of a decreasing term policy is an increasing term policy. Premiums typically rise over time to account for inflation.
Limited Payment Life and Single Premium Life
Limited payment life insurance policies are whole life policies that provide a fixed death benefit but require premium payments to be made over 10, 15, or 20 years. Premiums may become more expensive near the end of the payment period. A single premium life insurance policy is one that is paid off in one lump sum. Both methods continue to increase cash value after premiums are no longer paid.
Modified and Graded Premium Whole Life
Both modified and graded premium whole life policies have lower premiums at the start of the policy period, which is typically within the first 5 to 10 years. After that, the premium rate increases. The difference is that a modified premium policy increases once and stays level, whereas a graded premium policy increases in a series of steps until it reaches a plateau.
Current Assumption Whole Life Insurance
The insurer's actual mortality, interest, and expense experience is used to calculate current assumption whole life insurance premiums. Premium rates are lower if their actual experience is positive, and vice versa. Premium rates may change as a result of the company's actual experience being recalculated, usually on the policy's anniversary date.
Indeterminate Premium Whole Life
These whole life insurance policies have two premium options: a lower fixed rate and a guaranteed maximum rate. Policyholders of these types of policies pay a lower fixed rate for a set period of time, after which the premium increases or decreases based on current mortality, investment earnings, and expenses. However, the one-year premium does not exceed the guaranteed maximum rate.
Equity Indexed Life Insurance
Equity indexed life insurance is a type of permanent life insurance in which the cash value is linked to an equity index. This type of policy is available in two varieties: universal life and whole life.
Premium payments are flexible with the universal life form. When it comes in the form of whole life insurance, the premiums are fixed.
Ordinary Whole Life and Term Life
In their most basic form, these two types of policies have level monthly premiums for the duration of the policy. You and the insurance company agree on the premium, which is determined by underwriting factors and the amount of coverage, also known as the death benefit. Whole life policies provide permanent coverage and are more expensive than term life policies, which provide coverage for a set period of time.
How Much Does a $10,000 Life Insurance Policy Cost?
A $10,000 life insurance policy is classified as final expense insurance due to the low coverage amount. This is a whole life policy designed to cover expenses incurred as a result of a policyholder's death, such as burial costs. These less expensive policies are typically available to applicants over the age of 40 and range in price from $20 to $200 per month, depending on your age and tobacco use.
How Much Is a $250,000 Life Insurance Policy?
Your premiums are affected by the amount of life insurance you purchase. Higher face values imply higher premiums. Life insurance quotes for a $250,000 life insurance policy vary depending on age, health status, and policy type (permanent or term).
Term life insurance, as previously stated, is less expensive and covers a set period of time, typically 10, 20, or 30 years. Premiums typically range between $10 and $200 per month, depending on your age, health, and term length.
A $250,000 whole life policy is more expensive than a term life policy and grows cash value. Rates are also affected by your age, health, and lifestyle. Monthly premiums typically range from $20 to $200 per month and are paid for life.
Is It Better to Get a 20- or 30-Year Term Life?
The decision between a 20-year term policy and a 30-year term policy is ultimately determined by your life insurance needs. Because the term is shorter, a 20-year term life insurance policy with the same death benefit as a 30-year term policy is more expensive. A larger death benefit entails a higher premium. Examine your needs carefully when deciding which option is best for you and your loved ones.
With StrongInsurance, you can compare life insurance quotes in a matter of minutes by simply clicking a button. Simply enter your information, and StrongInsurance will generate a list of quotes from top insurance companies for you to compare and select the policy that best meets the life insurance needs and budget of you and your loved ones.
Conclusion
The cost of life insurance is determined by a variety of factors that differ from person to person. The right premium for you may not be the right premium for your neighbor, not only because of underwriting considerations, but also because people's needs and budgets vary.
You can quickly compare quotes that best suit your needs and budget by using StrongInsurance. You can save time and money by comparing life insurance quotes from the comfort of your own home.