If you’ve ever asked the question: How much does life insurance cost? You’ve come to the right place.
The truth is there isn’t one answer as life insurance costs vary depending on your (and your loved ones’) financial needs, your lifestyle, your job, your hobbies, and several other factors.
There are also several different types of life insurance available such as term life, whole life, and universal life insurance.
Everyone’s situation is unique so a policy that works for another person may not be the best choice for you.
How Life Insurance Costs Are Determined
What you pay for life insurance is determined by your risk classification. Risk classification is the process of grouping together risks with similar risk characteristics.
People with similar levels of risk are placed in common rating classes and charged the same premium. The lower the risk, the lower the premium.
- Actuaries are responsible for calculating the premium rates for each insurance company.
- Underwriters are the ones who assess the individual applications to determine an applicant’s mortality risk.
- Mortality risk is essentially determining a person’s probability of death based on a number of statistics.
There are standard and substandard risk classes. Applicants with a normal or average risk profile will be accepted at standard premium pricing.
If underwriting determines that the applicant has a higher mortality risk than average, coverage may only be offered with substandard pricing – this is known as being table rated.
All paid life insurance premiums essentially go into a big bucket that gets invested and accumulates interest. When an insured person dies, the life insurance company reaches into this pot to pay the death benefit.
How much will I pay for life insurance?
Your premiums costs will be determined by the term length and coverage amount you apply for and your risk class. Your risk class is determined by your individual risk factors.
As an example, it would not be fair for a 30-year-old cigarette smoking individual to pay the same amount of money as a 30-year-old who has never smoked. The cigarette smoker needs to pay more into the bucket since their mortality risk is greater.
5 Factors That Determine Your Life Insurance Costs
Two people with the same type of policy may pay different rates depending upon their age, health, gender, and lifestyle.
- Age: The younger you are, the less expensive life insurance is as you are less likely to die. If you are age 70 or older, you have a higher risk of dying, so you will pay more for your life insurance policy. Premiums jump quite a bit at age 50. Lock in your rate before age 50, if you can.
- Health: Your height, weight, and smoking status, as well as medical conditions, such as diabetes, cancer, heart disease, or asthma, all affect the cost of life insurance as they may increase your risk of death.
- Gender: Women statistically live longer than men and therefore pay less.
- Family History: Your health could be as clean as a whistle, but if someone in your immediate family was diagnosed with heart disease at age 50, then you may pay more for your life insurance policy. Quotacy knows which insurance companies will offer the best rates to someone whose mother died of cardiac arrest at age 50, for example.
- Hobbies: Scuba diving, skydiving, private aviation, world travel, and any recreational activities that could be considered risky affect your life insurance costs.
How much is term life insurance?
Term insurance is typically the most affordable option due to its temporary nature, and by far the most commonly owned life insurance product in the USA.
There is no cash value with a term insurance policy but when you get term life insurance quotes, the insurance company guarantees they will not increase the price you pay during this level term period (10, 15, 20, 25, 30, 35, or 40 years) to protect your loved ones.
» Calculate: Life insurance needs calculator
If you should die within the term, the entire coverage amount goes to your loved ones or other beneficiaries.
John Doe can buy a $500,000 20-year level term insurance policy at $40 per month.
If he dies unexpectedly any time within those 20 years, his beneficiaries will receive $500,000. If he died in the 10th year, he would have paid $4800 in premiums with his loved ones receiving $500,000.
When your term ends, coverage at the previous price is no longer guaranteed. You must either forgo coverage, convert to a permanent policy, if available, or buy a new policy by going through the application and underwriting process again.
Converting Term Life Insurance
A clause is written into most term insurance contracts that allows you to convert your policy to a permanent one. Term life insurance is ideal for those who need coverage for a specific period of time, but if your situation changes and you prefer coverage for your lifetime converting to a whole or universal life product is an option.
You purchase a 20-year term policy with a 10-year conversion clause. This means if you are nine years into your contract and want to convert, you are free to do so without having to go through additional physical exams.
See what you’d pay for life insurance
How much is whole life insurance?
Whole life is a permanent insurance product that provides coverage for your entire life. A cash value accrues over time within the policy.
Because of this cash value and the lifetime coverage, whole life insurance has higher premiums (up to five to ten times higher) than level term life insurance.
A portion of your premium payment goes to pay for the actual whole life insurance coverage that is an amount equal to the face value of the policy. The cash value builds from investments made by the insurance company with the remainder of your premium.
With whole life policies, you have the option to borrow or withdraw your cash value at any time.
- Borrowing: If you borrow from it, the insurance carrier treats it as a policy loan and you pay interest until it is repaid. If you die before it is repaid, the carrier will reduce the death benefit your beneficiaries would receive by that unpaid amount.
- Withdrawing: You will owe income taxes if the amount you withdraw is more than what you have paid in premium—otherwise it’s tax-free.
When you die your beneficiaries only receive the face amount of your policy. The cash value balance it is not added to the death benefit.
Someone buys a $100,000 whole life policy and dies with a cash value of $40,000. The insurance carrier pays the beneficiary $100,000 not $140,000.
If you want to purchase a whole life policy, you have three different payment options:
- Single premium payment
- Premiums payable to 100 years
- Premiums payable for a limited number of years
Single Premium Payment
Make a one-time payment.
You’re 30 years old and pay $17,239 upfront for $100,000 of coverage, in addition to the cash value that can be accessed during your lifetime.
Premiums Payable to 100 Years
Pay a fixed monthly or annual payment to age 100.
You’re 30 years old and pay $80 a month (or $900 annually) for $100,000 of coverage until you die. Cash value accumulates as well and can be accessed during your lifetime.
Pay premiums for 10, 15, or 20 years to pay off your policy.
You’re 30 years old and want to pay off the policy in 15 years. You pay $113 monthly (or $1300 annually) for 15 years for $100,000 in coverage and never pay a premium again. Cash value accumulates and can be accessed during your lifetime.
How much is universal life insurance?
Universal life (UL) insurance is one of the most versatile types of permanent life insurance. It has a high degree of flexibility and separate expense, protection, and cash value elements.
- Premiums: Instead of being locked into a fixed premium schedule for life, you can potentially pay any amount between the required plan minimum to the IRS-imposed maximum, depending on your cash flow needs and accumulation goals. Premiums may be increased, decreased, or even skipped depending on policy conditions.
- Death Benefit: You can adjust the amount your beneficiaries receive upon your death within plan limits without having to buy another policy. This can reduce your costs, if necessary.
With universal life insurance, the premiums you pay each month go into a metaphorical bucket. Each month the insurance carrier takes out the administrative fees and the cost of insurance. The funds that are left earn interest.
The amount of interest earned depends on the rate declared by the insurance carrier and how much money is currently in the bucket. The rate will never fall below a contractually-guaranteed minimum and the accumulated cash value can be accessed at any time through policy loans or surrenders.
- Policy loan: This enables you to borrow money from your policy using the value as a form of collateral. These loans do accrue interest and, if not paid off while you’re alive, the unpaid amount is deducted from the death claim benefits.
- Full surrender: If you decide to fully surrender your policy, you are terminating all coverage and typically you will receive the accumulated policy value, less a surrender charge and any accrued loan interest, if applicable.
- Partial surrender: This occurs if you decide to permanently withdraw a portion of your policy’s cash value, but keep some or all coverage active. There is no interest charged for a partial surrender, but there is a flat fee.
With universal life policies, you typically have two coverage options.
- Option A: Your amount of life insurance coverage (the death benefit your beneficiaries receive) stays level and, as the cash value accumulates, the amount of life insurance you pay for decreases.
- Option B: The cash value is added to the initial amount of life insurance, extending your coverage as the cash balance grows.
You choose the amount of protection best for your situation.
As a policyowner, you have more flexibility with a UL permanent product than a whole life insurance policy, but you also assume some additional risk. UL policies typically have fewer guarantees than whole life coverage, so you must be careful to manage your premium payments and any distributions taken to ensure that your policy remains active.
» Learn more: Whole Life vs Universal Life guide
Return of Premium Term Life Insurance Cost
Return of premium term life insurance (ROP) is a term insurance policy where the insurance carrier will return to you all the premiums you have paid, if you outlive your policy’s term length. Your beneficiaries would receive the death benefit (policy face amount) if you would die during the term.
Your monthly (or annual) premiums are fixed and do not change as you get older or if your health changes. Return of premium term life insurance costs about two-thirds more than level term life insurance. ROP premiums are higher than traditional term life premiums because the insurance carrier is paying out whether you live or die. You must, of course, keep your policy active by paying your premiums.
You’re age 30 and purchase a 30-year ROP policy. You’ll pay $35 monthly ($390 annually) for $100,000 worth of coverage.
Should you die at age 40, your beneficiaries receive the $100,000 death benefit. Should the 30-year term policy end and you are still living, the insurance carrier gives back the entire premium amount you paid tax-free to you. That’s $12,600 (if you paid monthly) or $11,700 (if you paid annually.)
Not sure what type of life insurance is best for you? Start here: The Life Insurance Buyer’s Guide
About the writer
Natasha Cornelius, CLU
Senior Editor and Licensed Life Insurance Expert
Natasha Cornelius, CLU, is a writer, editor, and life insurance researcher for Quotacy.com where her goal is to make life insurance more transparent and easier to understand. She has been in the life insurance industry since 2010 and has been writing about life insurance since 2014. Natasha earned her Chartered Life Underwriter designation in 2022. She is also co-host of Quotacy’s YouTube series. Connect with her on LinkedIn.