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9 Factors That Could Affect the Cost of Life Insurance

Life Insurance
9 factors that could affect the cost of life insurance include the death benefit amount, type of life insurance policy, riders, your age, your gender, your health, tobacco use, family history and lifestyle/occupation.9 factors that could affect the cost of life insurance include the death benefit amount, type of life insurance policy, riders, your age, your gender, your health, tobacco use, family history and lifestyle/occupation.

If you're thinking about buying life insurance coverage, you'll likely want to know how much the premium will cost. Life insurance premiums can be based on many factors, and the price of your policy will be determined by your unique situation. Although these variables can differ quite a bit by provider and policy, there are a few common ones. By understanding how these factors affect your premium, and the overall cost of life insurance, you can get an idea of what to expect before formally applying.

Key Takeaways

  • Death Benefit Amount affects the premium, with higher coverage resulting in higher costs.
  • The type of policy (term or whole life) impacts the cost, with term policies generally cheaper.
  • Riders add extra benefits but increase the cost.
  • Age and gender influence premiums, with younger individuals and females typically paying less.
  • Health, tobacco use, family history, and lifestyle/occupation can raise or lower costs based on risk factors.

1. Death Benefit Amount

The primary benefit of a life insurance policy is the death benefit. This is the amount the insurance company would pay to your beneficiary if you died while insured. Typically, the more coverage you buy, the higher the premium. So, a policy with a $500,000 death benefit would likely cost more than the same type of policy with a $250,000 benefit.

2. Type of Life Insurance Policy

There are several different types of life insurance coverage, which can have different costs. One significant difference is whether you apply for a term life insurance or whole life insurance policy. Term coverage is temporary and has a set expiration date. If you outlive the term, the coverage ends. A longer term can be more expensive than a shorter term because it lasts longer.

Whole life insurance policies can last your entire life, as long as you keep paying the premium. This tends to make their premiums more expensive than term life insurance policies.

3. Riders

When purchasing life insurance, you'll likely have the option to add additional features to your policy. These are called riders and they add extra benefits, such as the insurance company paying your premium if you get disabled. But in exchange, riders can impact the cost of life insurance.

4. Your Age

Age is another common factor in determining the cost of life insurance. The older you are, the more you could end up paying for life insurance coverage. This is because a younger applicant has a longer life expectancy.

For example, the average 20-year-old will live longer than the average 70-year-old. This means they are statistically less likely to pass away any given year and have more time to pay life insurance premiums. As a result, the insurance company typically charges younger applicants less per year.

5. Your Gender

Females on 5.8 years longer than males. Since females have a longer life expectancy and more time to pay premiums, their cost of life insurance could be lower.

6. Your Health

When you apply for life insurance coverage, the insurance company usually reviews your health through a process called underwriting. Underwriting typically involves checking your medical records, collecting your blood and urine for lab testing, or asking you to have a medical exam with a nurse or doctor.

Healthy applicants with good habits typically pay less. On the other hand, if you have certain health conditions, you may need to pay more for coverage. If an applicant has a serious, life threatening condition like cancer or a recent heart attack, the life insurance company could deny their application altogether.

7. Tobacco Use

Life insurance companies also check whether you use tobacco, since this can lead to serious health problems. When you use tobacco, chances are your cost of life insurance will be more expensive, and this typically applies even if you don't have any other health problems. If you quit smoking after you sign up, you might be able to request to go through the health underwriting again to possibly get a lower rate. Keep in mind that going through the underwriting process could raise your rate if the examination reveals health issues or underwriting raises other concerns.

8. Family History

As part of the application, the insurance company could also ask about the medical history of your immediate family like your parents and siblings. If you have a family history of health problems, like multiple family members with diabetes, this could increase your cost of life insurance as the insurer may worry you could develop the same issue.

9. Lifestyle & Occupation

Finally, the life insurance application could ask about your job, hobbies and lifestyle. If you work in a dangerous field, you may need to pay higher premiums to make up for the extra risk. If you have any dangerous hobbies, like skydiving or race car driving, this could also increase your costs. Finally, the insurance company could check your driving and criminal records. If so, these could lead to a higher cost or outright denial of coverage.

You can get a more specific quote by contacting a financial representative. The insurance company will prepare their quote and you can then decide whether to accept the policy or not. Still, understanding the factors at play beforehand can give you an idea of what to expect so you can minimize any surprises as you get started with the process.

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Information provided is general and educational in nature, and all products or services discussed may not be provided by Western & Southern Financial Group or its member companies (“the Company”). The information is not intended to be, and should not be construed as, legal or tax advice. The Company does not provide legal or tax advice. Laws of a specific state or laws relevant to a particular situation may affect the applicability, accuracy, or completeness of this information. Federal and state laws and regulations are complex and are subject to change. The Company makes no warranties with regard to the information or results obtained by its use. The Company disclaims any liability arising out of your use of, or reliance on, the information. Consult an attorney or tax advisor regarding your specific legal or tax situation.