How Much Is Life Insurance?

A whole host of factors determine what your premium will be for life insurance coverage.

Written by Erin Gobler / April 28, 2022

Quick Bites

  • The cost of life insurance depends on several key factors, including the type of policy you choose, the coverage amount, and your age, gender and health.
  • In general, term life insurance tends to be the most affordable, while permanent policies like whole and universal life are more expensive.
  • Term life insurance is probably sufficient for most people, but there are certain situations where permanent life insurance might make sense.
  • You can shop around for life insurance in several ways, including directly with individual insurers, through online insurance marketplaces, or with the help of an insurance broker.

No one wants to think about their own death or the death of a loved one. But having the right life insurance policy in place can provide peace of mind that your family will be taken care of if the unthinkable happens. And the good news is that life insurance doesn’t have to add a huge line item to your budget. Depending on your age and the type of life insurance you buy, coverage can be surprisingly affordable.

In this article, we’ll discuss the different types of life insurance, the costs and how to decide which type of life insurance is right for you.

Inside this article

  1. Life insurance costs
  2. What does your premium cover?
  3. Term. vs. whole vs. universal
  4. Is life insurance worth It?
  5. How to choose the best type
  6. How to sign up

How much does life insurance cost?

One of the most common questions people have when it comes to life insurance is how much it’s going to cost. Unfortunately, there’s no easy answer to that question because of all the different types of life insurance you can buy, as well as the variables that determine your life insurance premiums.

First, there are three primary types of life insurance: term life insurance, whole life insurance and universal life insurance. Term life insurance tends to be more affordable, while whole and universal life insurance—both also known as permanent life insurance—typically have higher premiums.

Personal attributes matter, too, when it comes to the cost of life insurance. Life insurance companies consider your age, gender, health history and more when setting your premium.

What goes into your life insurance premium

Numerous factors determine how much you’ll pay for life insurance premiums, and those include who you are, what type of policy you are buying and how much coverage you are getting.

Information about you:

Life insurance companies use algorithms to set life insurance rates based on what they consider to be your individual level of risk. Those factors include[1]:

Age

One of the most important factors that determines your life insurance premium is your age. In general, younger people pay lower premiums, and costs increase as you age. The reason is that older policyholders are simply more likely to die while their policy is in effect, making them a higher risk for insurers. For that reason, you may be able to lock in a lower insurance rate while you’re young.

Gender

You may be surprised to learn that your gender can also impact what you pay for life insurance. Women tend to live longer than men do. In 2019, life expectancy at birth was 81.4 years for women, but 78.8 years for men.[2] As a result, women are typically charged less for life insurance.

Health

Your health is another factor that insurance companies use to set premiums. In fact, with poor health you can even be denied life insurance because you present too high of a risk for the insurance company.

When you apply for life insurance, you’ll have to answer a variety of questions about your health and medical history. It’s important to be honest. If you lie on these forms and later pass away, the insurance company may refuse to pay out your policy’s death benefit. In addition to your own medical history, a family history of cancer, diabetes, heart disease or other serious medical condition can raise your premium.

It’s also common for insurance companies to require a medical exam, during which a medical professional will check basic health metrics like your blood pressure, weight and heart rate. You may also have to have blood drawn for various tests.

Lifestyle

Your lifestyle choices can matter. With a dangerous job, you’ll likely pay higher insurance premiums than someone who sits at a desk all day does. Smoking or engaging in high-risk hobbies can raise your premiums, too.

Type of coverage

The type of life insurance policy you choose will dramatically affect your premiums. In general, term life insurance tends to be more affordable, while permanent life insurance like whole and universal life are more expensive (more on these differences below).

One reason term life insurance is more affordable is that coverage ends after a certain period of time. “If you are buying a policy that lasts 10 years, you are essentially ‘renting’ the death benefit for that term of 10 years,” says Mark Williams, the CEO of Brokers International, which provides life insurance services and other tools to businesses. “The chances of someone dying in the next 10 years after passing through underwriting are pretty slim.” Permanent insurance, on the other hand, is designed to remain in force until the day you die. “The company knows you will die at some point and therefore must collect more premiums to cover the death benefit,” adds Williams.

Coverage amount

The final major factor that affects your life insurance premium is the amount of coverage you purchase. When you sign up for your policy, you’ll be able to decide how large of a death benefit you want. The more coverage you need, the more expensive your policy will be—a term life insurance policy with a $100,000 payout will be more affordable than one with a $500,000 payout.

Term. vs. whole vs. universal life insurance

Life insurance policies generally fall into two categories: term and permanent life. And within permanent life insurance, there are both whole and universal policies. Below we’ll explain a bit more about each type of policy, which will help you to understand why the costs vary so much.

Term life insurance

Term life insurance is the simplest and most affordable type of policy. These policies have a set term, typically between 10 and 30 years. If you die within that time period, your policy will pay out your death benefit to the beneficiaries you’ve listed on your policy.

“Term life is usually the least expensive option,” says Greg Leifer, an independent insurance agent with World Insurance. “Premiums can be as low as a few hundred dollars per year.”

Your age is a critical factor in determining your costs since it helps insurers gauge the likelihood of your dying during your policy term. The average cost of a 20-year term life insurance policy with a coverage amount of $250,000 ranges from $14.26 a month for a 25-year-old female to $85.40 a month for a 55-year-old male.[3]

Whole life insurance

Whole life insurance is considered permanent life insurance because once you sign up for your policy, you’ll have it for your entire life, assuming you continue to pay the premiums.

Your whole life insurance premium is broken into two parts. The first part covers your death benefit, similar to the premium you pay for a term life insurance policy. The other part builds up your policy’s cash value, which is a tax-deferred investment account that grows over time.

The cost of a whole life insurance policy generally doesn’t change over time. However, the percentage of your premium that goes toward the death benefit increases as you age, while the portion that builds cash value decreases.

Just as with term life insurance, the premiums on a whole life insurance policy will be higher the older you are when you sign up. The average rates for a policy with a $250,000 death benefit range from $175 a month for a 25-year-old to $692 a month for a 55-year-old male. These rates are considerably higher than what you’ll pay for term life because of the cash value component and the fact that coverage potentially lasts for the rest of your life.[3]

Universal life insurance

The final type of life insurance we’ll talk about is universal life insurance, which is also permanent life insurance. There are many similarities between universal and whole life insurance. Both offer a lifetime death benefit, as well as the ability to build cash value within your policy.

The primary difference between these policies is payment flexibility. When you have a universal life policy, you can raise or lower your premiums within a certain range. Your cash value builds based on how much you pay in premiums. And if there’s a time you can’t pay your premium, you can cover it with the funds in the cash value portion of your policy.

Calculating the average universal life insurance premium is difficult because of the payment flexibility. In general, the average minimum premium will be more than a term life insurance policy and less than a whole life insurance policy. But remember, your policy builds cash value only if you pay more than the minimum.

Is life insurance worth It?

When you’re young, it’s easy to think that life insurance is an unnecessary expense. But unexpected things do happen, and it’s best to be prepared. As a general rule, you should purchase life insurance if anyone relies on your income or if anyone would be financially harmed by your untimely death. Life insurance can help cover your family’s living expenses, and can also help pay off your debts or cover the cost of a funeral.

How to choose the best type of life insurance

There isn’t one type of life insurance that’s best for everyone. Instead, you must consider your financial situation to decide which is best for you.

“They first need to determine how much coverage they need,” says Leifer. “Then they need to determine if the need for the coverage is short-term or long-term and look to their cash flow to see what they can spend to fund the purchase.”

For most people, term life insurance is probably the best choice, since it provides a death benefit at an affordable rate. While there is a cash value component to permanent life insurance, the returns are often lower than what you could get by putting those extra funds into the stock market. That being said, permanent life insurance may be appropriate for high-income earners who have maxed out their tax-advantaged retirement accounts and need another way to defer taxes on their investments.

How to sign up for life insurance

Once you’ve chosen the best type of policy for you, there’s nothing left to do but apply for coverage. But you might be wondering where you can actually do that.

Thanks to technology, it is easier than ever to sign up for life insurance. You can shop directly with individual insurers or use one of the many online insurance marketplaces available to help you find the best and most affordable policy for your needs. Major life insurance shopping sites include SelectQuote, IntelliQuote, Policygenius and QuoteWizard.

“The best answer is to find a financial professional that understands life insurance and the types of policies there are and get their advice,” says Williams. “If you are a “DIYer” there are thousands of resources online, along with life insurance calculators that can help you determine just how much life insurance you need and what type of policy may be best for you.”

Article Sources
  1. “8 Factors That Affect Life Insurance Premiums,” Fidelity Life, https://fidelitylife.com/learn-and-plan/insights/factors-that-affect-life-insurance-premiums.
  2. “Mortality in the United States, 2019,” National Center for Health Statistics, https://www.cdc.gov/nchs/data/databriefs/db395-H.pdf.
  3. “Average life insurance rates 2022: how costs change by age, term, and policy change,” Policygenius, https://www.policygenius.com/life-insurance/life-insurance-cost.
  4. “When permanent life insurance makes sense as an investment,” Insurance.com, https://www.insurance.com/life-insurance/life-insurance-basics/permanent-life-as-investment.html.

About the Author

Erin Gobler

Erin Gobler

Erin is a personal finance expert and journalist who has been writing online for nearly a decade. Erin’s work has appeared in major financial publications, including Fox Business, Time, Credit Karma, and more.

Full bio

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