How Are Life Insurance Policy Costs Determined?
Many people get life insurance from their employer. But if you work for yourself, you have to pay for your own coverage, which is why you may be curious about life insurance policy costs.
People buy life insurance for a lot of reasons. But nearly everyone who gets a policy wants to protect their loved ones from any financial hardship that may come as a result of their death.
And if you’re self-employed, work in the gig economy, or freelance, now is a good time to get life insurance and ensure your family’s financial future. As a bonus, you don’t have to worry about losing life insurance when you have an independent plan (unlike people who get their plan from an employer).
Wondering how much life insurance costs? We break it down here so you can make the best decision for yourself and your family.
Life Insurance Policy Costs: The Basics
First things first: Term life insurance is inexpensive and straightforward. Based on your age and health status, you’ll pay a set amount of money at regular intervals. Then when you pass away, the beneficiary you name on your policy will get a lump sum of cash. If you live longer than the term of the policy, it expires, and your beneficiaries won’t get a death benefit. You can choose to renew your policy at this time.
A 35-year-old woman who doesn’t smoke and is in good health can expect to pay about $25 per month for a 20-year term, $250,000 life insurance policy. This means that if you make your payments and die within those 20 years, your beneficiary will get $250,000. A $500,000 policy with a 20-year term would cost about $36 per month for this woman.
If you’re a smoker, you can expect to pay a much higher rate. That same woman as a smoker would pay $145 per month for a $500,000 life insurance policy with a 20-year term (a difference of $109 per month!).
How Life Insurance Costs Are Determined
Life insurance companies make money by collecting your monthly payments. And they manage risk by setting those payments based on your age and health. For example, if you buy a term life insurance policy while you’re young and healthy, you can secure a low rate. That rate won’t change during the preset term of the policy, even if you become ill later.
There are several other factors that influence the cost of your coverage. Insurance companies use these factors to determine your life expectancy. This can include:
Lifestyle
Income history
Medical history
Family medical history
Health status
Credit report
While one insurance company may not penalize you for having well-managed high blood pressure, another might. Using a variety of factors, life insurance companies classify potential policy owners into categories. The lower you land on the list, the more you’ll pay for life insurance.
Stride tip: There isn’t a standard that all life insurance companies use, so it’s possible that one company may rate you as a high risk because you have asthma while another offers you a lower rate due to your age. Keep this in mind while you shop around!
How to Find a Life Insurance Policy That Works for You
You might only buy life insurance once, so it’s important to shop around for the best rates and terms.
In general, good life insurance candidates have these things in common:
Strong driving record (no suspensions or terminations of one’s license)
No history of treatment for alcohol or drug abuse
BMI of under 35
No high-risk activities or hobbies like hang gliding, motor racing, or rock climbing
No high-risk jobs like off-shore drilling or mining
It’s possible to get a term life insurance policy without going through a medical exam. However, if you want a policy with a high face value, the insurance company might require you to get a check-up, which can include blood tests. The good news? These tests are free, and they’re an easy way to find out if you’re in the healthy range for blood pressure and cholesterol levels.