A life insurance premium is the amount of money you pay to the insurance company in exchange for your coverage. Price, rate, and premium are often used synonymously in life insurance. So, don’t get confused if you see these terms used interchangeably.
In this guide, you’ll learn more about what a life insurance premium is, how your cost is determined, and how paying premiums works.
Table of Contents
- What Is a Premium in Life Insurance?
- How a Life Insurance Premium Determined
- How Do Premium Payments Work?
Want to know how much life insurance may cost you? Get an instant term quote online. No contact information required.
What Is a Premium in Life Insurance?
Life insurance is a contract. Here’s how it works:
- You apply for coverage.
- The insurer then makes an offer by issuing the policy at a specific rate.
- You accept it by paying the required premium.
- The insurance company promises to pay according to the policy’s terms as long as premiums are paid.
When you apply for life insurance, you are not obligated to accept the coverage. If you accept it and pay, you have ten days to change your mind and get a full refund.
If you need life insurance, don’t be nervous about applying. You’re in control. The insurance company cannot voluntarily terminate the contract, but you, as the policy owner, can decide to cancel your policy at any time.
How a Life Insurance Premium Is Determined
When you apply for life insurance, you may be surprised at its affordability. Most Americans overestimate pricing.
The cost of a life insurance policy is based on the applicant’s individual factors. The type of coverage you apply for, your age, gender, health, and lifestyle all impact life insurance premiums.
Policy Type
There are two broad categories of life insurance: term and permanent.
Term life insurance is temporary coverage with few frills and, therefore,
- Term has very budget-friendly premiums.
- Level term life insurance is the most common choice
- Once you buy a policy, your rate and death benefit amount won’t change
In other words, even as you age, your term life insurance premium will never increase, and your coverage won’t decrease.
One exception: If you use some of your policy’s living benefits, i.e., accelerated death benefit, it would lower the death benefit your beneficiary ultimately receives.
Permanent life insurance coverage lasts your entire life and can be pretty complex.
- Premiums run very high compared to term
- Whole life insurance is one of the most common permanent life insurance choices
- Like term insurance, your whole life insurance rate is fixed
One exception: If you take out loans against the policy and don’t pay them back while alive, the death benefit paid to your beneficiary will then be reduced.
When comparing policies with identical face amounts, a whole life insurance policy will always have higher premiums than term life due to its additional features. Consider the table below for price comparison.
| Life Insurance Monthly Premiums for a Healthy 35-Year-Old Male (Preferred Plus Rates) | ||
|---|---|---|
| Face Amount | 30-Year Term Life Policy | Whole Life Policy |
| $100,000 | $13.49 | $126.81 |
| $250,000 | $20.82 | $278.78 |
| $500,000 | $34.29 | $557.55 |
| $1,000,000 | $63.10 | $1,115.10 |
Most families only need term life insurance. However, if you have long-term life insurance needs, speak with an agent about your permanent life insurance options. Our agents don’t work on commission and offer unbiased advice. Feel free to contact us directly.
Coverage Amount and Term Length
Life insurance needs vary from person to person. Keep the following advice in mind when considering your individual needs:
- The more financial responsibilities you have, the more coverage you likely need.
- How long these financial responsibilities will last will impact how long you need coverage.
A permanent policy lasts your entire life. But term life insurance has an expiration date. Term lengths range from 10-40 years.
How much coverage you buy and how long of a term length you choose will impact your life insurance premium. The more life insurance you buy, the higher your rate.
The tables below show how coverage amounts and term lengths impact your monthly premium.
| Life Insurance Monthly Premiums for a Healthy 35-Year-Old Male (Preferred Plus Rates) | ||
|---|---|---|
| Face Amount | Term Length | Monthly Premium |
| $250,000 | 10-Year | $9.56 |
| $250,000 | 20-Year | $13.12 |
| $250,000 | 30-Year | $20.82 |
| $250,000 | 40-Year | $37.64 |
| Life Insurance Monthly Premiums for a Healthy 35-Year-Old Male (Preferred Plus Rates) | ||
|---|---|---|
| Face Amount | Term Length | Monthly Premium |
| $100,000 | 20-Year | $8.77 |
| $250,000 | 20-Year | $13.12 |
| $500,000 | 20-Year | $20.22 |
| $1,000,000 | 20-Year | $32.91 |
The younger you are, the cheaper your life insurance is. We recommend buying as much coverage as you can comfortably afford since you can lock that price in for the entire contract.
Rider Choices
When you get a basic life insurance quote, you see the base premium. You can choose to add optional riders to your policy for additional benefits. Most riders have a small fee added on top of your base premium.
Common life insurance riders include:
- Child Rider: This rider provides a small amount of life insurance coverage on any children you have under 18. Also, it can later be converted into a permanent policy for that child without any medical underwriting.
- Waiver of Premium Rider: With this rider, if you become disabled for an extended period, it waives your premium payments. The waived premiums do not have to be paid back.
- Accidental Death Benefit Rider: With this rider, if you die due to an accident, your beneficiary receives an additional benefit on top of the base death benefit amount.
Many term life insurance policies include two free riders:
They’re often automatically included, they don’t impact your premium, and you’re not obligated to use them. But they are an excellent benefit to have if you do end up needing them.
The table below shows how adding riders can impact your monthly premium.
| Cost of a $250,000 20-Year Term Policy for a 35-Year-Old Male (Preferred Plus Rates) | |
|---|---|
| Base monthly premium: | $13.29 |
| Child rider ($10K coverage) monthly fee: | $4.23 |
| Waiver of premium rider monthly fee: | $2.66 |
| Accidental death benefit rider ($100K benefit) monthly fee: | $9.13 |
The quotes in the table above are specifically for a Corebridge (formerly AIG) policy. Rider costs and availability vary across life insurance companies and states.
See what you’d pay for life insurance
The Underwriting Process
Underwriting is one of the most important steps in the life insurance buying process. It’s when the insurance company determines if they can insure you and how much your policy will cost.
Everyone has risk factors. Risk factors influence your estimated life expectancy. For example, someone who smokes will statistically have a shorter life expectancy than someone of the same age who doesn’t smoke. Using tobacco is one example of a risk factor.
Risk factors can include:
- Age
- Gender
- Height and weight
- Pre-existing health conditions
- Tobacco use
- Alcohol use
- Drug use
- Driving record
- Occupation
- Hobbies
During the underwriting process, an underwriter at the insurance company will review your application and pertinent records to assess your risk factors.
The underwriter will then assign you a risk class to determine your cost. The better your risk class, the better your life insurance premium.
| Monthly Premium for a $250,000 20-Year Term Policy for a 35-Year-Old Male | |
|---|---|
| Preferred Plus | $13.12 |
| Preferred | $15.71 |
| Standard Plus | $20.33 |
| Standard | $22.75 |
| Preferred Tobacco | $46.25 |
| Standard Tobacco | $62.76 |
How Do Life Insurance Premium Payments Work?
Simply put, paying your premiums keeps your coverage active. When buying a policy, choose one that’s affordable long-term.
Do You Pay Life Insurance Monthly or Annually?
Most life insurance companies allow you to choose how often you want to pay premiums: monthly, quarterly, semi-annually, or annually. The most common choice people make is either monthly or annual premiums.
Paying annually:
- Pay for a year of coverage all at once
- Less administrative fees to process one annual payment vs one each month
Paying monthly:
- Easier to manage financially due to smaller payments
- More expensive in the long run due to processing fees
- May be required to set up automatic payments
Do Life Insurance Premiums Increase Over Time?
Level term life insurance and whole life insurance premiums are fixed. This means they won’t increase for the entire contract period.
There are some cases when life insurance premiums can increase. Such as:
- Some life insurance policies, like universal life insurance, can have fluctuating premiums. These policies need to be monitored closely.
- Group life insurance premiums typically increase in five-year increments.
- If you choose to renew your term life insurance policy, renewal premiums increase yearly.
- If you convert your term policy into a permanent one, your new premiums will be higher than your term premiums.
Why Would My Premium Be Different Than My Quote?
When you apply online for life insurance, you are shown an estimate of what you will pay for coverage. However, hundreds of factors can impact your final premium, and a quoting tool can’t take them all into consideration effectively.
There’s a chance that your final premium offered by the insurance company will be higher than your initial quote. But here at Quotacy, we try extremely hard to set realistic expectations upfront and advocate on your behalf.
As a broker, we have a duty to you, our client, before the insurance company. When you apply, you’re assigned an agent who will review your application before submitting it to your chosen insurance company.
Your agent works to catch any possible issues with the insurance company and works with you to help you find affordable coverage.
What Happens If You Stop Paying Premiums?
Paying your premiums on time keeps your policy inforce or, in other words, active.
If you miss a life insurance payment, you typically have a 30-day grace period to pay it before your coverage lapses for nonpayment.
If the grace period passes and you still haven’t paid, your policy lapses, and you’re no longer insured, which means your beneficiaries no longer have financial protection.
If you have a permanent policy accumulating cash value, these funds may be used to pay missed premiums if it’s set up for such. In this case, your coverage would not lapse due to missed payments until your cash value is no longer sufficient to cover the costs.
Learn more about the differences between term and whole life insurance to discover which option is best for you.
Get Your Lowest Premium When You Work With Quotacy
Did you know you don’t have to give up any contact information to see quotes on Quotacy.com? Compare policies and pricing instantly online before applying.
The online application only takes a few minutes to complete. After submission, you’re assigned a dedicated agent who works in your best interests.
Life insurance premiums vary drastically between insurance companies depending on your risk factors. As an independent broker, Quotacy can shop around from carrier to carrier to find the best policy option for you.
0 Comments