Affordable Life Insurance Protection for Your Family

How is Life Insurance Priced?

Learn about Pricing of Life Insurance Policies


How Does an Insurance Company Determine Your Premiums? 

How is Life Insurance Priced?

When it comes to buying life insurance, the premium you will be charged for your policy is one of the most important factors in deciding which insurance company and plan you will select.

So, how are premiums determined? The life insurance company uses information you provide to assess the risk you present to the insurer of dying while you will be insured.

Get a Free Quote

Key Pricing Factors

Some of the key factors considered are the type and amount of life insurance.

Term life is temporary, the shorter your duration (term) for coverage, the lower your annual premium because there is a lower risk of you dying. In addition, the larger the amount of life insurance you need, the higher the cost.

In addition, your age and gender impact your premium charged for coverage.

Younger people pay lower premiums due to a longer life expectancy – they are expected to live longer than older people. And, women pay less for life insurance compared to men because they live longer lives on average.

Obviously, you need to find out how much your life insurance will cost, to make sure you can afford to buy the amount of term life insurance coverage you need.

You’ll also want to make sure that you know the frequency of which you need to make your premium payments. The basic premium payment options are usually monthly, quarterly, semi-annually and annually.

One thing about some term life policy premiums that you need to know is that it may increase at certain intervals, for example, every 5 years there may be an increase in the amount of premiums you pay for your term life policy.

Make sure you understand how long your premium is guaranteed to remain level (the same) before purchasing your term life plan. Level term life insurance policies offer level premiums for a term of 10, 15, 20 or 30 years.


What is a Premium for Life Insurance?

The premium is the amount of money you pay to the insurance company on a regular basis, usually every month or once per year, in return for the insurer providing you with a specific amount of life insurance protection.

The premium charged is based on several factors the insurer considers in determining how much you pay based on the risk presented by insuring you.

Premium Pricing Risk Factors

Here is a list of some of the key factors that impact pricing of life insurance:

  • Type and Amount of Coverage
  • Age and Gender
  • Health and Family Health History
  • Lifestyle
  • Tobacco Use
  • Driving Record
  • Occupation and Hobbies
  • History of Drug and/or Alcohol Abuse

Life Insurance premiums are about life insurers managing risk. Insurers manage risk and avoid it by setting rates that will allow them to profit from the premiums you pay for your life insurance policy.

The insurer analyzes the risk of you dying by reviewing your responses to the questions on the application and results of your physical examination. 

Their goal is to take care in choosing who they insure, so their insured lives longer and pays more premiums.  


What Type of Risk are Life Insurance Companies Interested In?

Basically, the same risks we are all concerned about with our health and longevity.

Subjects we hear discussed each day on the news and in the newspapers and magazine articles:

High Cholesterol, chewing tobacco, diabetes, being overweight, cancer, smoking, HIV, and other illnesses and diseases related to poor health and causing early death.

In considering these health risks, the insurance company selects a grade or status relating to your health.

These health ratings include: Preferred RiskStandard RiskSuper Preferred Risk, among others.

Health ratings are based on your gender, age and health. These ratings also determine the rate or premium you will pay for your life insurance coverage. 

Obviously, the better health you are in, the lower your rate would be compared to the person (of the same age) in average or poor health. That’s because you have a lower chance of dying prematurely compared to someone with health issues.

Several life insurance risk factors considered in determining your insurance premiums are not in your control.

Those factors include your gender and your age.

National Underwriting Studies show that because women tend to live longer than menwomen pay less for the same amount of life insurance as men.

Your age also has an effect on how much you pay for life insurance. The older you are the more likely you are to die, so you pay more for a new life insurance policy at an older age, than a younger person.  

Your lifestyle (risky hobbies or frequent travel to high risk areas with disease or war), your family medical history, and your physical health are key factors in determining your life insurance premium. The greater the risk for each of these factors, the higher your premium for life insurance.  

Usually, the insurance company will ask about your health and require you to take a medical exam.

They’ll check your heightweightblood pressure, vital signs, and take blood and urine samples. 

Blood and urine are checked for disease, including HIV, hepatitis, high cholesterol, cancer, kidney problems, diabetes, and other health problems. Also, screening for nicotine, medications and illegal drugs are performed. 

Each life insurance carrier sets its own life insurance rates and decides what individuals fit into the preferred, super-preferred and standard risk classes for rating purposes.

If you do have a special health risk there are insurance companies that specialize in offering life insurance for specific health problems

If you have a health problem you can address it: 

Stop smoking. Take medication or lose weight. Start eating better. You can improve your health and lower your life insurance premiums.

If you give evidence of considerably improved health to your life insurance company, they may decrease your life insurance premiums. Keep this in mind. 

Some life insurance companies will change your risk rating and lower your premiums if your risk factors get better over time. It pays to improve your health. You live longer and you pay less for your life insurance.


How Much Will Life Insurance Cost Me?

That depends on your age, health and the amount of the death benefit you need. The younger and healthier you are, the lower your premium will be, because you have much longer to live on average, before a claim may be paid on your policy.

Here’s an example for you – A healthy 35 year old man buys a 20 year level term life insurance policy which has a fixed annual premium of around $440 per year for $500,000 of life insurance protection.

However, a healthy 50 year old man who buys the same policy might pay $1,350 per year. 

In addition, premiums for cash value (permanent) life insurance policies are much higher.

For example, a healthy 35 year old man who pays $440 per year for a $500,000 term life insurance policy would pay about $4,400 a year for a universal life insurance policy, in part because a portion of the premiums go into an investment component of the policy.


Life Insurance Quotes

Top Pick – JRC Insurance Group

JRC Insurance Group helps you shop, compare and save on life insurance. Regardless of your age or health background, we'll shop our 40+ insurance companies and find you affordable life insurance you need to protect your family and fit your budget. Compare the best life insurance rates for savings up to 73%. Get Your FREE Quote


What is the Price of No Exam Life Insurance?

Life Insurance Price Calculator

How is Life Insurance Priced?

Disclosure: Compensated Affiliate