Understanding Life Insurance Premiums

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. 

Frequently Asked Questions