Understanding Life Insurance Premiums

Contributor, Benzinga

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When you apply for life insurance, the company that’s insuring your life will do its best to find a policy that makes sense for your situation. And the company is going to do this by taking into account several factors, including:

  • The amount of money you make 
  • What happens if you die during the policy’s term 
  • Whether you have any dependents who would need support after your death 
  • Whether there are any debts on your property

Because these elements factor into how much the company will charge, it might not be easy to know what a good price point is. That’s why we’re going to take a look at the different factors that go into determining a policy’s price.

What Are Life Insurance Premiums?

Life insurance premiums are the payments you make to keep your policy in force. Depending on your specific policy, the premium can be charged annually or monthly. 

Life insurance premiums can vary from 1 person to the next, depending on factors like age, health and gender. While men tend to pay higher rates because of lifestyle choices, women generally pay lower premiums because of their longer life expectancy. You should get a quote and shop around before committing to a policy.

How Do Life Insurance Carriers Set Premiums?

Life insurance providers consider many predetermined factors. Some of those factors are below.

The Policyholder

The 1st thing an insurance company will look at is the life expectancy of the policy holder. The company knows that if you’re planning on living a long time, it needs to have more money on hand. That way, it can pay you by continuing to collect premiums for as long as possible. If the premium costs less each month, the policyholder will need to pay less money each month. Again, this is because the insurance company wants to keep collecting premiums until death or retirement, whichever comes first. It also looks at your gender, age and, usually, your health history.

The Money Factor

The life insurance company also will look at the money factor. This is the idea that you’re willing to pay higher premiums for a policy that has a larger death benefit. Again, the company knows that the longer you live, the more money they’ll need to pay out in benefits. So, if you expect to live a long time, you will most likely pay more for your policy. 

Chances of Death Factor

The 3rd thing that will affect the cost is your chance of dying during your policy term. If you are in good health and don’t have any serious medical conditions, chances are, you’ll have a lower risk of dying. The older you get and the longer your policy is in force, the more likely it is that there will be some kind of medical problem. The insurance company knows you are less likely to die, and that lowers your policy cost.

Your Dependents

The last thing the insurance company will look at is the dependents you would leave behind if you die. If you have someone depending on you such as a spouse or a child,  the company must make up for the loss of your income. And again, the insurance company knows that the longer it has to pay out a death benefit, the more money it might need for this purpose. So, if there’s someone depending on you, policy premiums might be higher than normal.

What Types of Life Insurance are Available?

There are several types of life insurance policies. Some companies specialize in one type of policy, so don’t waste your time going with someone who doesn’t deal with the kind of policy you need. Here’s a quick description of the 6 most common life insurance policies you can get.

Term Policies

If you want a certain amount of coverage for a specific amount of time,  this is the best option for you. This would be typical if you have no dependents and want to set aside money for burial costs or help your family pay off some debt in case something happens to you.

Universal Life Policies

This policy is best when you want a flexible amount of protection. It’s ideal for people who don’t have dependents and are looking to save for retirement or for a child’s education. With universal life, you can pick the cash value you want as well as how long you want the policy in force.

Whole Life Policies

This is usually recommended for people who have dependents and are worried about those dependents’ future if something were to happen to them.  If you’re in your mid-30s with a family and no plans for retirement, this is probably a good choice for you. A whole life policy lets you lock in an insurance rate for the rest of your life.

Universal Life Insurance with a Savings Component

This type of policy has all the benefits of a universal life policy plus a savings component. The savings component allows you to build up cash value that can be used to cover long-term healthcare expenses or out-of-pocket medical expenses and keep them from draining your estate if something happens to you. It’s best for people who are fiscally conscious and want to save money on their long-term healthcare costs.

Variable Life Insurance

With this policy, you can get a flexible amount of coverage and a savings component. But it’s also nice for people who have liquid assets because it can be used to invest in a variable investment option that will grow over time. Overall, this is great if you want an investment with your life insurance or something that can help you save for retirement.

Return of Premium Policies

This type of life insurance is best for people who are retired but still need some kind of coverage. It’s also ideal for younger people who may not need certain levels of coverage but want to keep the insurance policies in place instead of letting them lapse, which could damage their credit.

Compare Life Insurance

Below you will find some of the best companies that sell life insurance online or aggregate quotes. 

Get started securely through Bestow Life Insurance’s website
Disclosure: *excludes New York
Age Requirements
18-59
N/A
1 Minute Review

Bestow offers 2 kinds of life insurance policies: 20-year level term policy or a 10-year level term policy.

Through its policies, you may qualify for up to $1 million in term life insurance. That may seem like a sizeable sum, but if you have a spouse and children, you have to consider the cost of things beyond your mortgage, such as daycare and eventually college, as well as the loss of wages over time.

Bestow uses its proprietary technology to underwrite your insurance policy, so the application process is much faster than with traditional life insurance companies. They’re also backed by Munich Re and North American Company for Life and Health Insurance, 2 A+ rated insurance companies.

Best For
  • People who are looking for short-term life insurance
  • Individuals who don’t want to go through the hassle of having a medical exam or blood work done to get coverage
Pros
  • Plans start at just $8/month
  • Decent coverage options if you need insurance quickly and without hassle
Cons
  • Offers 2 types of plans; does not offer whole or universal life insurance policies
  • The 10- and 20-year plans not available to users under 21 or older than 55
Age Requirements
18 – 100
N/A
1 Minute Review

Northwestern Mutual offers a variety of life insurance policies that are suitable for a wide range of people. Policies are available in all 50 states, although some policies and riders may not be available in every state. The company has strong financial strength ratings and an above-average rating when it comes to consumer complaints. 

To get a quote from Northwestern Mutual, you have to talk to one of its agents. However, you can browse information on its website and use the coverage calculator tool to estimate how much life insurance coverage is recommended for your family.

Best For
  • Affordable term life insurance that can be converted to a permanent life insurance policy later
  • Adding riders to a life insurance policy
Pros
  • Strong financial strength ratings and a low number of consumer complaints
  • Several types of life insurance policies available
  • Offers other financial planning, insurance and investment products and services
Cons
  • Lack of clarity about the product offerings on Northwestern Mutual’s website
  • Can’t get a quote or apply directly for a policy online
get started securely through Fabric Life Insurance’s website
Age Requirements
21 – 60
N/A
1 Minute Review

Fabric offers term life insurance, free digital will creation and other tools to help you better your family’s financial life. They’re the one stop shop for young families looking for financial security.

Fabric offers 10, 15, 20, 25 and 30 year term options and coverage ranging from $100,000 to $5 million.

Fabric offers highly reviewed online customer service through its app and website and has the highest TrustPilot rating in its class.

Best For
  • No exam required for most
  • Those who want to avoid the hassle of insurance salesmen
  • New or expecting parents looking for a broader suite of financial tools
Pros
  • Affordable premiums
  • Free digital will creation
  • Free app with helpful tools for parents
  • Apply and see your rate in less than 10 minutes
Cons
  • No term life coverage in New York or Montana
  • Can’t increase coverage after purchasing
Age Requirements
18 – 80
N/A
1 Minute Review

With more than 12 million active customers, Transamerica Corp. is one of the biggest names in the life insurance industry. Transamerica offers a wide array of life insurance products — everything from term to a variety of permanent life insurance products, including whole, universal and variable life.

Transamerica life insurance policies are available to anyone ages 18 to 80, with coverage starting at just $25,000 and going as high as $10 million. In addition to term and permanent life insurance policies, Transamerica offers final expense insurance and any number of riders to help customers customize their policies.

Best For
  • Coverage with chronic conditions
  • High benefit policies
  • Smokers
Pros
  • Term life policy quotes and purchase available online
  • Wide array of products
  • Comprehensive online resources
  • No medical exam required for many term policies
Cons
  • Below-average scores from the National Association of Insurance Commissioners (NAIC) and J.D. Powers
  • Policies purchased through agents only
  • Disproportionate number of customer complaints
get started securely through Ladder’s website
Disclosure: Ladder Insurance Services, LLC (Cal. license # 0K22568; Ark. license # 3000140372) offers term life insurance policies: (i) in New York, on behalf of Allianz Life Insurance Company of New York, New York, NY (policy form # MN-26); and (ii) in all other states and the District of Columbia on behalf of Allianz Life Insurance Company of North America, Minneapolis, MN (policy form # ICC20P-AZ100 and # P-AZ100). Only Allianz Life Insurance Company of New York is authorized to issue life insurance in the state of New York. Insurance policy prices, coverages, features, terms, benefits, exclusions, limitations and available discounts vary among these insurers and are subject to qualifications. Each insurer is solely responsible for any claims and has financial responsibility for its own products.
Age Requirements
20 – 60
N/A
1 Minute Review

Ladder offers policies with no hidden fees, on-the-spot underwriting and a streamlined website. Coverage ranges from $100,000 to $8 million and you can adjust your coverage over time as needs change.

You can choose a 10, 15, 20, 25, or 30-year term. Ladder also offers up to $3 million in coverage without a medical exam — just answer a few health questions and complete the application to get an instant decision.

Ladder doesn’t impose policy, cancellation or processing fees and you can cancel at any time. Take three steps to get Ladder insurance:

  1. You can apply for life insurance coverage with Ladder right now via the online application.
  2. Find out whether you’re instantly approved.
  3. Accept your offer — including affordable prices and no hidden fees.

Its price lock guarantee ensures your premium won’t increase as your health changes and you age. Policies in New York are issued by Allianz Life Insurance Company of New York and in the other states and DC by Allianz Life Insurance Company of North America. You can receive a refund within the 1st 30 days if you’re unhappy with your coverage and you can cancel at any time.

 

Best For
  • Term life insurance
  • Online application
  • Policyholders between 20 to 60 years of age
Pros
  • Up to $8 million in coverage
  • Price lock guarantee
  • No policy fees
  • 30-day money-back guarantee
  • Adjustable coverage
Cons
  • No policy riders
  • Term life insurance only

Frequently Asked Questions

Q

How is a life insurance premium calculated?

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How is a life insurance premium calculated?
asked
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The size of the premium is determined by your age, sex and health status. As with any insurance policy, your premium amount will depend on the number of years in force as well as your health history.

answered
Q

The size of the premium is determined by your age, sex and health status. As with any insurance policy, your premium amount will depend on the number of years in force as well as your health history.

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The size of the premium is determined by your age, sex and health status. As with any insurance policy, your premium amount will depend on the number of years in force as well as your health history.
asked
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You might think it’s impossible to afford life insurance if you don’t have a lot of cash available to you. However, the good news is that there are a number of life and disability coverages you can use to keep costs down. And remember that this is just one piece of your overall financial plan.

answered
Q

What is a premium in life insurance?

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What is a premium in life insurance?
asked
A
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A premium is the amount of money you pay to obtain an insurance policy. Depending on your policy, you will maintain a certain level of coverage or a cash value.

answered

Methodology

Benzinga crafted a specific methodology to rank life insurance. To see a comprehensive breakdown of our methodology, please visit our Life Insurance Methodology page.