The average American thinks life insurance is far more expensive than it is. In a 2022 research survey, LIMRA asked adult consumers, how much does life insurance cost? And most overestimated the average cost by three times.
The cost of life insurance varies from person to person. In this guide, you’ll learn how life insurance costs are determined.
Table of Contents
- How Life Insurance Costs Are Determined
- How Much Will I Pay?
- How Much Is Term Life Insurance?
- How Much Is Whole Life Insurance?
- How Much Is Universal Life Insurance?
- Return of Premium Term Life Insurance Cost
- Getting the Best Life Insurance Rates
How Life Insurance Costs Are Determined
How much 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. People healthier than average qualify for preferred rates.
If underwriting determines that the applicant carries more risk than average, coverage may only be offered with substandard pricing – this is known as being table rated.
Learn more about risk factors: What Are the Risk Factors that Affect Buying Life Insurance?
How Much Will I Pay for Life Insurance?
When you buy life insurance, you first choose whether to buy term life insurance or permanent life insurance. Term life insurance will be less expensive than permanent.
With term life insurance, you can choose how long you want the coverage to last and how much coverage you want. The longer the coverage, the higher the premium. The more coverage you have, the higher the premium.
The tables below show examples of different coverages and term lengths to illustrate how the term policy you choose affects your premiums.
Insured: Male, 40-Years-Old, Non-Smoker
| Coverage (Face) Amount | Term Length | Monthly Rate |
|---|---|---|
| $100,000 | 10-Year | $8.48 |
| $250,000 | 10-Year | $11.64 |
| $500,000 | 10-Year | $16.86 |
| $750,000 | 10-Year | $22.17 |
| $1,000,000 | 10-Year | $26.18 |
| $5,000,000 | 10-Year | $109.26 |
Insured: Male, 40-Years-Old, Non-Smoker
| Coverage (Face) Amount | Term Length | Monthly Rate |
|---|---|---|
| $500,000 | 10-Year | $16.86 |
| $500,000 | 15-Year | $19.82 |
| $500,000 | 20-Year | $28.30 |
| $500,000 | 25-Year | $41.65 |
| $500,000 | 30-Year | $49.26 |
| $500,000 | 35-Year | $61.73 |
| $500,000 | 40-Year | $112.52 |
The rates in the table above are for someone who qualifies for Preferred Plus, the best risk class. Your risk class is determined by your individual risk factors.
Risk classes are assigned because it would not be fair for a 40-year-old cigarette smoking individual to pay the same amount of money as a 40-year-old who has never smoked. The cigarette smoker needs to pay more into the bucket since their mortality risk is greater.
The table below gives you an idea of how much life insurance costs based on the risk class you’re assigned.
Insured: Male, Age 40
Coverage: $500,000 20-Year Term Life Insurance Policy
| Risk Class | Monthly Rate |
|---|---|
| Preferred Plus (Non-Smoker) | $28.42 |
| Preferred (Non-Smoker) | $35.23 |
| Standard Plus (Non-Smoker) | $46.00 |
| Standard (Non-Smoker) | $54.85 |
| Preferred Smoker | $121.34 |
| Standard Smoker | $161.84 |
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.
Here’s why:
- Age: The younger you are, the less expensive life insurance is as you are less likely to die. If you are 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 U.S.
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.
Learn about the options you have once term coverage ends: What Happens When Term Life Insurance Expires?
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. The cash value accumulates 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 against your cash value. 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.
When you die, your beneficiaries only receive the face amount of your policy. The cash value balance 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.
Limited Pay
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.
Flexible features:
- 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 fluctuates based on market rates. The rate will never fall below a contractually guaranteed minimum and the accumulated cash value can be accessed at any time through policy loans, withdrawals, 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.
- Withdrawing: Withdrawing is a permanent reduction from your policy’s death benefit. You will owe income taxes if the amount you withdraw is more than what you have paid in premiums—otherwise it’s tax-free.
- 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 receive the death benefit (policy face amount) if you 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.
| Estimated Monthly Cost of a 20-Year $500,000 Policy for a Healthy Male | ||
|---|---|---|
| Age | Term Policy | ROP Term Policy |
| 30 | $18.84 | $94.60 |
| 40 | $28.42 | $141.24 |
| 50 | $69.48 | $362.56 |
| 60 | $199.56 | $1,023.88 |
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
Getting the Best Life Insurance Rates
The cost of life insurance varies from person to person. However, how much life insurance costs also varies from insurer to insurer.
Few people realize that insurance companies underwrite risk factors differently, which can significantly impact your price. If you have any risk factors, which can vary from high cholesterol to a history of DUIs to participating in rock climbing, then working with a broker is the best way to get the best rates possible.
A broker can shop the market for you. Brokers are independent and not employed by insurance companies.
Quotacy is an independent broker and works in your best interests. Our quoting tool also allows you to get instant term quotes without giving up any contact information. When you’re ready to apply, the online application only takes a few minutes to complete.
Once you submit your application, you’re assigned a Quotacy agent dedicated to helping you get the best coverage possible. We work with multiple top-rated life insurance companies and help make sure you’re matched with the best one for your unique situation. The ability to compare different policies and shop around can save you money. Find out how much life insurance costs by getting a quote today.
Note: Life insurance quotes used in this article are accurate as of March 24, 2023. These are only estimates and your life insurance costs may be higher or lower.
I have cash value from an existing policy. I’m a 23 year old male, non-smoker, in good health. I would like to buy a ‘paid up’ amount of life insurance so I don’t have to worry about making payments in the future. What would the ‘one time premium’ be for a $100,000 amount?
Jack,
Thank you for your question. There isn’t enough data for me to give you an accurate quote as your health will play a role in the pricing. Since you are 23 years old and have cash value in an existing policy, I would take a hard look at whether it makes sense to replace that whole life policy with another one though. You have either purchased it fairly recently (in the past 5 years) or it is a child whole life policy bought by a loved one. Many of those contracts have great buy up provisions if something happens to your health over the next 15 or so years. It should also be pretty close to paid up already. A comprehensive policy review of your current plan needs to be done before thinking about moving those funds into a new contract.
I also would not recommend that you single pay a whole life policy right now. Since you are looking for a paid up policy, you should be able to do that in a 10 pay scenario without creating a MEC. A MEC is a modified endowment contract, which means if you ever touch the money in the whole life policy in the future (and you probably will) you will be taxed at ordinary income for any growth over and above the premiums you paid. That’s not good. So ask whomever you are working with to look at a 10 pay policy instead. There are companies that will allow you to write one check and the insurance company will hang onto your money in an interest bearing savings account and parcel out the 10 premiums from it. This would feel like a single pay, but it won’t be taxed as though it is one.
I am 70 years old. Female Do not Smoke. Good Health.Broke Back on Job. In Pain Management. Would like the most I can get for the least Premium. Would like Quote for 10 Year Term and 20 Year Term if Possible. And Does It Have Pre Existing Conditions.
Hi Jane,
Thank you for your question. We will reach out to you directly to work with you on this.
I’m 57 and have opportunity in employment to purchase $50,000 worth of Universal life insurance with long term care coverage for $103 a month. Just wondering how to determine if this is a good rate.
Hi Terry! It is difficult to know based on the information provided whether this is a good rate. Much of it comes down to whether you smoke, your height/weight, and if you have any health conditions. If you have had recent major health issues, a plan through work that is guaranteed issue can be an amazing deal. If you are relatively healthy though, employer sponsored plans tend to overcharge (because of the guaranteed issue component of the plan and there are unhealthy individuals who also got coverage for the same price).
My suggestion is to talk with another advisor about what they might be able to do for you. Quotacy has a permanent life insurance specialist on staff that could walk through what you would like to accomplish and design a plan. Otherwise, there are independent advisors everywhere who would be happy to talk with you. Look for someone who has access to multiple companies and has a focus on life insurance.
I want to buy a life insurance or life insurance contract for the purpose of growing cash value, which is the best option? I don’t have any dependents, so I really need little life insurance. Thank you!
Jorge,
Since you are looking to purchase life insurance to grow cash value, then the most important considerations will be product design, carrier strength and type of permanent product.
Your options for product are whole life and universal life. Both have their pros and cons. Fixed life insurance for cash value accumulation should grow between 3% and 5% over a 20 year period, so typically people do this with their ‘safe’ money. Whole life insurance has more guarantees built into the contract and are a great way to be your own banker. Universal life insurance is better for income distribution during retirement. Whichever is the better choice for you depends on your goals.
Whichever agent you work with needs to design your plan with the least amount of life insurance possible with the most money going in without becoming something known as a MEC. There are a lot of great agents out there, but there are some who look to maximize their commissions as well. You should press the agent to design you a plan where you are putting in as much money as you can with the lowest amount of death benefit. Paying premium for 10 or 20 years can also be a good plan because you will have an ending time in mind for paying the premiums into the policy.
If I have $100,000.00 to invest in Life Insurance, How much will it buy?
Hi Gary,
The question of how much life insurance will $100k buy depends on many factors. The first of which involves your age, health conditions, smoking status, height/weight, occupation, hobbies, etc. These are the underwriting factors that determine the cost of insurance for a policy. After those facts are known then we can begin designing a plan for you.
The other factor in determining how much insurance can be purchased for $100k is plan design. Here are some questions: Are you buying the life insurance to protect your family or to grow cash value? Are you interested in having permanent coverage or having coverage last for a specific term period? Do you want pay one single payment, or are you looking to put premiums in over many years?
When someone puts money into a life insurance contract for the purpose of growing their cash value, then the goal is actually to buy as little life insurance as possible. This may sound counterintuitive, but the goal is to maximize cash value growth rather than use extra money for death benefit protection. There are also products that are guaranteed to pay out proceeds upon death, known as guaranteed universal life, but have little to no cash value after the premium goes in. This product is used to ensure the family always will receive a death benefit and is done at the lowest cost to the owner of the contract. There are many different permanent insurance options including whole life, guaranteed universal life, current universal life, indexed universal life and many others as well.
There are many different strategies in putting together a plan and we would be happy to have a conversation about options with you. Feel free to give us a call at contact us at (844) 786-8229 if you would like to discuss further.
Jeremy
Life insurance costs a lot more NOT TO have than it does TO have!
My mother passed away in March. We found out she has 2 different life insurance policies. We do not have the policies. I spoke with representatives and both policies are active. How can I file a claim without the policies. I have the death certificate.
Hi Lee,
I am sorry about your mother’s passing, but thank you for reaching out to us with your question.
If you have the death certificate, that’s all you really need. Contact the individual life insurance company, ask for the claims department, and let them know you need to process a claim. They will be able to walk you through it. If you know your mother’s life insurance agent, he/she is likely more than willing to do this for you.
We have a blog post How to File a Life Insurance Claim that you can take a look at if you need further help, or you can always contact us too.
Natasha