How Much Does Life Insurance Cost? Factors That Affect Your Life Insurance Cost

Do you want to purchase life insurance? You must know how it works and how the cost of life insurance depends on coverage, amount of time, and type of policy you are getting. Read the full article to abreast yourself with life insurance cost details.

Life insurance can provide financial assistance to your loved ones after you pass away. But how much does life insurance cost? The answer is not easy. Life insurance costs vary depending on several factors, including your age and gender, the company you choose, the death benefit amount you purchase, the type of policy you buy, and your health.

Life insurance provides financial protection for the people you care about. You pay a monthly or annual premium to an insurance company. In exchange, the company pays a tax-free lump sum of money to your beneficiary if God forbid you to die while the policy is active. You can customize your life insurance policy to fit your family’s needs by choosing the type of policy you buy, the number of years you want it to last, and the amount paid out.

Life insurance is a financial safety net you will potentially be paying premiums toward for decades. That’s why it is crucial to understand the cost of your policy. First and foremost, letting a policy slip up because you can not afford it defeats the purpose of having it in the first place. Your policy’s premiums depend on your policy details, including the type of policy and the coverage amount, as well as your circumstances, like your health, age, family background, and lifestyle choices.

It is essential to understand that there are several types of life insurance policies; therefore, despite the fundamental determining factors, each type covers differently, so does the change in the cost of each plan. Let’s help you find the best-suited policy for you and find out “how much does life insurance cost.”

How much life insurance do I need?

When families sit down to explore life insurance options, they frequently ask the same two questions: How much life insurance do I need, and what type of life insurance should I shop for? Like other important decisions that families need to make, the answers to these questions are not black and white. Some families need permanent life insurance coverage, and others would be better off with affordable term coverage with an enormous death benefit.

Likewise, the amount of coverage that one needs varies, depending on where you are in your career, how much you earn, and the types of debts and financial obligations you have. So before you buy life insurance, you will want to consider what you will get from a life insurance policy and how much it will cost. So, it is hard to determine how much life insurance you should purchase. But, experts suggest a rule of thumb when answering the question. “How much life insurance do I need?

Rule of thumb

You must base your annual income to determine how much coverage to carry. You must be reading this because you decided to protect your family financially. An investment in a life insurance policy allows you to leave behind money your family can use to meet today’s and tomorrow’s needs. The rule of thumb of life insurance says your plan should equal seven to ten times the amount of your annual income.

The rule of thumb implies that the amount of insurance coverage aims to provide your loved ones with enough money to cover their needs for the near future and plan for the years to come. There can be the various needs mentioned below:

  • Income replacement for numerous years while they work to rebuild after the loss.
  • Future expenses for your children, such as covering the cost of college tuition for each one.
  • They are paying off the mortgage balance in full.
  • Other debts include credit cards, end-of-life medical bills, and care needs.
  • Funeral expenses, like a burial site, casket, or memorial service.

Nevertheless, it is vital to understand that just like one pair of pants does not fit all, the rule of thumb might not be easy to follow for everyone. People can get caught in different situations that do not let them invest seven to ten times more than their annual income for the life insurance plan. The conditions where the rule of thumb falls short may include sole breadwinner, stay-at-home parent, and enormous debts and financial goals.

How much does life insurance cost per month?

Life insurance is an affordable way to secure significant financial protection for your family. After you buy a policy, you make regular payments, called premiums, to maintain your coverage. In return, your insurer pays your beneficiary thousands or even millions of dollars if you die while your life insurance policy is still active. So, how regular are those life insurance payments? That’s one of the things you will need to decide when you buy your policy, along with decisions like choosing a beneficiary and the type and amount of coverage to buy.

Depending on the life insurance policy, you might have options for different payment schedules, including monthly or annual payments. However, most people opt to pay monthly for the life insurance policy. Monthly payments are easy to manage for the average person. You pay monthly premiums once a month on the date of your billing cycle. If you are new to these concepts, you must wonder what a life insurance premium is?

A life insurance premium is a payment you regularly make to keep your coverage active. These are typically monthly payments, but some insurance companies offer different payment schedules, like annual or even semi-annual. Your life insurance provider will provide a guaranteed payout to your beneficiary if you pass away while you have coverage in exchange for your premiums. With permanent policies, like whole life or final expense coverage, your life insurance plan will also have a cash value component that builds over time. You can borrow against this cash value, use it as collateral for a loan, or just let it grow during the policy’s life.

Now coming back to know how much does life insurance cost per month? Well, your monthly life insurance cost will depend on several factors, including your age, gender, overall health, the type and term of the policy, and how much coverage you purchase. Generally, the healthier and younger you are, the lower your monthly premium. Rates vary between companies,

although differences should not be drastic for the same policy types and features. Getting life insurance quotes from several carriers could help you find a lower rate.

Life insurance cost calculator

Price is one of the most important factors when deciding which life insurance policy is right for you and your family. Premiums vary widely based on term length, amount of coverage, age, gender, and health. Various calculators are available to try out different scenarios to estimate how much you will pay for term life insurance. But your final premiums may differ slightly from your estimated quotes.

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It is also vital to keep in mind as there are different life insurance policies, so are the calculators for calculating life insurance costs. Let’s get to know about these calculators and their functionalities.

Forbes life insurance calculator

A reasonable estimate of life insurance needs, requires using a formula that includes your future financial obligations and your assets, such as savings, that your loved ones can use if you die.

Forbes uses the following procedure to the life insurance cost calculator. The first step includes:

  • Take your annual income and multiplying it by the number of years your loved ones will need that salary. So, if you make $50,000 and want to provide your family with that income for ten years, that would give you $500,000. If you care for a child, you can estimate how much it would cost to get child care if you die rather than using salary data.
  • Combine financial obligations, including your mortgage, future college costs, credit card debt, and loans. Let’s say those total $300,000. That gives you $800,000 for annual income and financial obligations.
  • Now, you will want to subtract your assets. For instance, let’s say you have $200,000 in savings and other sources that your loved ones can get if you die. You’d subtract that from your income and financial obligations.
  • Our example would mean the person may need $600,000 in life insurance coverage.

Policy genius

The cost of life insurance varies significantly from person to person. It depends on several different factors out of your control including age, gender, lifestyle, and medical history, as well as several other factors you can choose including term length and face value. If you are interested in whole life insurance, check out their whole life insurance calculator. Following are the factors that you should consider while calculating the cost.

Age

The younger you are, the lower your premiums, which is why it’s best to buy earlier. The cost of life insurance increases by 4.5 to 9% each year you put off buying coverage, based on policies offered by Policygenius in 2022.

Gender

Based on Policygenius policy offerings in 2022, women pay an average of 24% less for life insurance than men.

ZIP code

Where you live won’t directly influence your premiums, but some policies may not be available to you because of insurance regulations in your state. If you live outside the U.S., you’re unlikely to qualify for a policy.

Policy term length

Your policy’s term length is how long your life insurance coverage lasts. Choose a term length that matches or exceeds your most prolonged financial obligation (like your mortgage) so that your family doesn’t end up liable for those costs. The longer your policy lasts, the more you’ll pay. Most companies offer between 5- to 40-year term lengths.

Riders

Riders, or policy add-ons, can increase the cost of your whole life insurance policy, though some riders are free.

Policy coverage amount

The more significant your policy’s death benefit (also referred to as the face value), the higher your premiums will be.

Whole life insurance costs between 5 to 15 times more than term life insurance. Here’s an example of how that works:

Sample calculator input

  • Age: 35
  • Gender: Female
  • ZIP code: 43004
  • Term length: 30 years
  • Coverage amount: $1 million

Sample calculator output

  • Best health: $51/month
  • Good health: $61/month
  • Average health: $85/month

Term life insurance calculator by Ramsey solutions

‘Ramsey Solutions’ provides you with a calculator that helps compare the term life insurance cost and choose the most appropriate policy for you. Providentially, most term life insurance costs a lot less than people think. The price depends on

  • Age: the longer you put off life insurance, the more expensive it gets
  • Health: the healthier you are, the better the rates
  • Coverage amount: usually 12 times your annual income
  • Term: the length of time for an insurance policy, which is generally 10 – 20 years

To use the calculator for your term life insurance cost, you need to perform the following tasks:

Answer a few questions

To find the cost, you need to provide information about your life situation such as marital status, dependents, income, debt, and retirement savings.

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Calculate your coverage

Ramsey’s free calculator will tell you how much coverage you need (about 10–12 times your yearly income) and how long you need to keep the term insurance.

Find the best policy

You will have the option to compare rates with Zander, Ramsey’s trusted partner. They will shop over a dozen top insurance carriers to find the best fit for you.

The tools mentioned above are designed to provide accurate information, but your situation may necessitate analysis of additional factors not accounted for by any of these tools. When making decisions regarding insurance coverage or considering the information provided by this tool, you should consult licensed professionals.

Whole life insurance cost

Life insurance can be complicated for a layman to comprehend its details. There are several options, so are the complications attached to each type and choice. While most people recognize the value of life insurance, several are unaware of the types. Here we will talk about whole life insurance and its cost depending on numerous factors.

What Is whole life insurance?

Whole life insurance is a permanent life insurance policy. It remains in force for the insured’s life as long as they pay the premiums. There are different kinds of permanent coverage; however, according to the ‘Insurance Information Institute,’ the whole life is the most common. A whole life policy also has a “cash value” component, which is a life-long financial asset. It has been given tax benefits as it is considered beneficial for society. Certain aspects make whole life insurance appealing to potential buyers:

  • Regardless of market conditions, your premiums are fixed and will never go up, regardless of market conditions.
  • You may be able to withdraw funds or take out a loan.
  • Your death benefit is guaranteed as long as you make the required premium payments.

How much does whole life insurance cost?

The cost of a whole life insurance policy depends on several factors, including how much coverage you buy and other things mentioned earlier. When it comes to paying your premiums, you will typically make a fixed annual payment for a whole life insurance policy. Some life insurance companies may also offer the option to pay monthly, quarterly, or bi-annually. Be aware, however, that paying premiums more frequently than once per year may incur additional fees.

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Whole life insurance rates are considerably more expensive than other types of life insurance. It can cost up to 10 times higher than term life insurance. Premiums range from $40 to $300 monthly, but these ultimately depend on:

  • Your individual profile
  • The company’s underwriting guidelines
  • Insurance policy type
  • Coverage amount
  • Any riders you purchase

Some policies offer an optional clause called a waiver of premium, which, as the name says, waives premium payments if the insured person becomes critically ill or disabled. Whole life insurance premiums are based on:

  • Age and gender: the younger you are, the lower your premiums. Premiums for women also tend to be more affordable than for men.
  • Medical history: insurance companies look at your own medical history and parents. Pre-existing conditions or family history of chronic diseases will drive up premiums. Expect a medical exam or health questions to assess your health.
  • Smoker Status: your premiums could increase by as much as 20% if you smoke cigarettes or use tobacco (cigars, snuff, and chewing tobacco).
  • Hobbies: Practicing extreme sports like skydiving and rock climbing raises premiums.
  • Occupation: Working high-risk jobs, for example, ex. police officers, construction workers, pilots, and firefighters, that impact insurance premiums.

What are the different types of whole life policies, and what do they cost?

Features, provisions, and costs vary from one insurer to the next, and each whole life contract is unique to the policyholder. Generally speaking, there are two basic types of payment structures for a whole life:

  • Level premium whole life: This is the most common type of whole life insurance. Guardian’s level premium policies go to ages 95, 99, and 121, making it easier to provide affordable life insurance coverage with the knowledge that your premium will not change.
  • Limited payment whole life: This type of policy has a fixed level premium like a level premium whole life policy, but the premium is only payable for a fixed time. The advantage is that they are guaranteed to be paid up at the end of the payment period, so no payment is required at later ages.

Life insurance rates by age

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. Age is a crucial factor when determining the cost or rate of life insurance. 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 from 9 percent to 12 percent more a year once you hit 50.

The type of life insurance you choose also affects the average cost of life insurance:

  • Term life insurance is the least expensive because it lasts a set number of years and all you’re getting is insurance.
  • Permanent life insurance lasts a lifetime and includes an investment portion that can be used later in life. Because of this extra cash value component, you’ll pay substantially more for permanent policies than for term life policies.

Let’s discuss the rate of term life insurance and whole life insurance by age.

The average cost of term life insurance by age

These annual life insurance rates are based on a $500,000, 20-year term life insurance policy for super preferred applicants.

Age Average annual rate for men Average annual rate for women
30 $227 $192
40 $340 $287
50 $835 $652
60 $2,362 $1,673
70 $9,298 $8,205

 

Average cost of whole life insurance by age

These annual life insurance rates are based on a $500,000 policy for super preferred applicants.

Age Men Women
30 $4,308 $3,802
40 $6,388 $5,467
50 $9,875 $8,347
60 $15,878 $13,487
70 $27,137 $23,678

Is life insurance worth it for a single person?

Generally, it is good to purchase a life insurance policy if people depend on you financially if you were to pass away. If you are single, you may be wondering if purchasing life insurance is worth it? But when it comes to life insurance, your marital status is not the only factor to consider. The main purpose of life insurance is to protect the people who might suffer financially if a policyholder dies.

But if you think you are single and do not need life insurance, you might have to shuffle your thoughts. No one relies on your income, so why pay into a premium every month when there is not someone who could act as the beneficiary?

Yet, it is not quite that simple, and there are some reasons you might benefit from a life insurance policy. From covering your funeral costs if you passed away to building wealth when you are alive, life insurance has more strings to its bow than a death benefit for your loved ones. Let’s present a few scenarios before you to understand the worth of life insurance for a single person.

1. You want to build wealth

If you purchase a permanent life insurance policy, you can build wealth while you are still alive, effectively using it as a form of a savings account. Permanent life insurance has a cash-value aspect that allows you to grow your money. You cover the death benefit and cash value when you pay into the premiums. Both grow each month, and you can access the cash value later down the line and use it for pretty much whatever you want.

2. You want flexible savings to use for the future

Permanent life insurance has options where you can either save in a high-interest savings account (IUL) or high growth investment account (VUL), that you can access whenever and for whatever you like either right away, or after a vesting period of 10 years, all tax-free.

3. You want to protect your income from illness or injury

It is essential to protect ourselves when we’re single because, let’s face it, who else will cover our backs but us? You can use permanent life insurance to protect yourself in illness or injury by accessing a large coverage amount if you suffer an unexpected illness or injury, or for later in life when the chances of us needing long-term care or contracting a critical illness are over 70%.

4. If you have debts

Let’s pretend that you have debt, and you pass away. This debt may somehow pass on to your family members. In this scenario, if you have life insurance, it will come in handy to pay off your debts.

5. You have financial dependents who are not your children

Being single does not necessarily mean you do not have dependents. You might provide financial aid to your aging parents or maybe even your grandparents, with them relying on you to help out. If the worst happens, suddenly, those who depend on you could face financial difficulties. However, suppose you name them as the beneficiary on your life insurance policy. In that case, they can receive the death benefit, so at least they won’t have to worry about their financial aid being disrupted.

Conclusion

Life insurance is a crucial matter for so many reasons. There are several factors that affect life insurance such as coverage, time, age, gender, health, and occupation. But there is one question that lingers on everyone’s mind when shopping for life insurance, how much does life insurance cost? The cost of life insurance may be less expensive than most people think.

Generally, younger people pay less than older people because they are less likely to have health problems. And the cost of life insurance tends to be more for males because they have shorter lifespans and are more likely to have complex jobs or lifestyles, making them riskier to insure overall.

Charles Bains

Charles Bains

Charles Bains started his insurance career as a marketing intern before pounding the pavement as a commercial lines agent in Orlando, FL. As an industry journalist, his articles have appeared in a variety of trade publications. His insurance television career, short-lived but glorious, once saw him serve as the expert adviser on an insurance-themed infomercial (yes, you read that correctly). Having recently worked for various organizations, coupled with his broader insurance knowledge, Charles is able to understand our client’s needs and guide them accordingly. He is a gem for Insurance Noon as his wide area of expertise and experience have been beneficial in conducting further researches to come up with solutions and writing them in a manner which is easy for everyone including beginners to comprehend.

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