The Cost of Life Insurance

Life insurance rates are determined by several factors, including your age, gender, health, whether you’re a smoker, the type of policy you buy and the amount of coverage you want. Buying a policy when you are young is one of the best ways to keep your life insurance costs low.

About 60 percent of Americans were covered by some type of life insurance in 2018, according to the Insurance Information Institute. The American Council of Life Insurers estimated individual life insurance protection totaled $12.1 trillion by the end of 2018.

If you are young and healthy you can get a term life insurance policy for around $20 per month. Business Insider reported one of its contributors purchased a $500,000 term life insurance policy for less than $21 in February 2020.

But insurance rates rise quickly as you age — up as much as 10 percent every year you wait. Your health and other risk factors can also increase your premiums.

What Determines Life Insurance Costs?

Mortality, interest and expenses are the three factors that determine life insurance costs, according to the New York Department of Financial Services.

Three Variables That Affect Life Insurance Costs
Mortality
Takes into account how long you will live with factors such as age, gender and health, including whether or not you smoke.
Interest
Insurance companies invest your premiums and assume they will earn a certain return on that investment.
Expenses
The insurance company adds on the expense of operating their business and a portion of your premium covers that cost.

In addition, the type of policy and amount of coverage you choose will affect the cost of your premium. Other factors that can affect your insurance costs include how dangerous your occupation is, any pre-existing medical conditions you may have and your immediate family’s medical history.

How Age and Gender Affects Life Insurance Costs

Age and gender both drive the cost of life insurance. Men typically have to pay higher premiums than women because women overall have a longer life expectancy.

The older you are, the more insurance premiums will cost you. You can expect to pay 8 percent to 10 percent more each year the longer you wait to buy life insurance, according to AIG Direct. It jumps to 9 percent to 12 percent more a year once you hit 50.

Using the average of those figures, a healthy 35-year-old man might buy a 20-year term policy at a cost of $500 per year. A healthy 50-year-old man would pay $1,175 a year for the same policy because he waited an additional 15 years to buy it.

Someone who waited until they were 65 would pay $3,025 for the same policy.

Monthly Costs for 10-Year Term Life with $100,000 Coverage
AGEMALEFEMALE
35$12$11
45$17$15
55$25$20
65$55$41
Source: AIG

Ways to Lower Your Monthly Premium

There are several ways to lower your monthly life insurance policy. They may require that you act quickly to purchase a policy or change your lifestyle to improve your chances of living longer.

How to Lower Your Monthly Life Insurance Premium
Buy While You Are Young
The younger you are the healthier and less likely you are to die — factors that keep your premium costs low.
Stay Healthy
Maintaining a healthy weight, low cholesterol and low blood pressure can allow you to qualify for lower rates.
Quit Smoking or Don’t Start
Smokers are generally charged much higher premiums than nonsmokers.

Participating in extreme sports may also cause you to pay higher premiums, and some insurers won’t even sell policies to people who take part in them. Still, other insurers will sell you a policy that will not pay out if your death results from an extreme sport or what insurers call a hazardous avocation.

Activities That Can Increase Your Life Insurance Costs
  • Base jumping
  • Big wave surfing
  • Bungee jumping
  • Cliff diving
  • Flying small aircraft
  • Free running
  • Heli-skiing (skiing from sites accessible only by helicopter)
  • Ice climbing
  • Luging
  • Mountain climbing
  • Rock climbing
  • Scuba diving (at depths of 200 feet or more)
  • Skydiving

Generally, if you take up a hazardous avocation after the contestability period on your policy expires — usually one to two years after you buy it — your death would be covered if you die from the activity.

Last Modified: June 2, 2020

6 Cited Research Articles

  1. Knueven, L. (2020, February 25). If You’re Considering Buying Life Insurance, Now Might Be the Right Time to Do It. Retrieved from https://www.businessinsider.com/personal-finance/life-insurance-premium-increases-set-to-slow-2020
  2. American Council of Life Insurers. (n.d.). Life Insurance. https://www.acli.com/-/media/ACLI/Files/Fact-Books-Public/07FB19FChap7LifeInsurance.ashx?la=en
  3. CNN Money. (n.d.). Ultimate Guide to Retirement. Retrieved from https://money.cnn.com/retirement/guide/insurance_life.moneymag/index9.htm?iid=EL
  4. New York Department of Financial Services. (n.d.). Life Insurance Resource Center; How the Cost of Life Insurance is Determined. Retrieved from https://www.dfs.ny.gov/consumer/cli_h_cost.htm
  5. AIG. (n.d.). Life Insurance Rates by Age. Retrieved from https://www.aigdirect.com/about-life/planning-for-life-insurance/life-insurance-rates-by-age
  6. Insurance Information Institute. (n.d.). Facts + Statistics: Life Insurance. Retrieved from https://www.iii.org/fact-statistic/facts-statistics-life-insurance#top