Factors Affecting Life Insurance Pricing
Life insurance is important because it is paid at a time your family needs it the most. If you are currently considering getting life insurance but are worried it is too expensive, you are probably wrong. Various factors will affect the price of life insurance, but the younger and healthier you are, the more affordable it is.
Various factors determine how much you will pay for the coverage you need:
The death benefit amount for your beneficiaries
The death benefit is the tax-free amount your beneficiaries will receive if you should die while the policy is valid. In insurance terms, the death benefit is also called the coverage amount. Your insurance premiums are affected by the coverage amount you require – the more you need, the higher your premiums.
Example: On a term 10 policy where everything is the same except for the coverage amount, for a 35 years old healthy female, the monthly premium will be $11.25 for a $250,000 death benefit, whereas the premium goes up to $17.10 for $500,000 coverage. (Both rates are from the same insurer)
Type of life insurance policy
There are two types of life insurance policies, and pricing will depend on the type you decide is best for you.
Term life insurance
With term life insurance, you decide on a fixed term for which you want your life to be insured. These terms are usually set at 10, 20, or 30 years. This makes the policy more affordable, and the shorter the policy term, the cheaper your premiums will be. The reason being that the insurer carries the risk over a shorter period and the probability of your dying young is less.
Permanent life insurance
With permanent life insurance, you pay the insurance premiums your whole life, and your family gets the death benefit no matter how old you are when you die. This makes permanent life insurance more expensive.
Example: On a $250,000 term life insurance policy where everything is the same, for a 35 years old healthy female, a 20-year term premium costs $15.30 monthly, whereas a 30-year term costs $25.88. (Both rates are from the same insurer)
Age is important in life insurance
Younger people have a lower risk of dying, and that is why life insurance is cheaper for them. The younger you are when you purchase life insurance, the lower your insurance rates are.
Example: On a $250,000 term policy where all else is the same, a 35-year-old would pay a monthly premium of $15.30, whereas a 45-year-old will pay more than double that amount at $30.60 monthly. (Both rates are from the same insurer)
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Gender is not equal when it comes to life insurance
Men and women have different life expectancies, and this changes the way life insurance is priced for the two genders.
Data released by Statista Research Department indicate that females born in 2020 are expected to have a life expectancy of 84 years, whereas for males it is expected to be 80 years. This makes insurance rates for women typically cheaper than for men.
Example: On a $250,000 20-year term policy where all else is equal, a 35-year-old male would have a monthly premium of $19.58 and a female would have a premium of $15.30.
Smoking increases premiums considerably
Smokers have a higher risk of dying at a younger age, and this increases their life insurance premiums considerably.
Example: On a $250,000 20-year term policy where everything else is equal, a 35-year-old female smoker will pay $33.75 monthly compared to only $15.30 of his nonsmoking counterpart.
Health issues have implications
Your health history will also play a role in the pricing of your insurance premiums, and insurers run a thorough and comprehensive health assessment on all applicants. This is because various illnesses can affect your life expectancy. Health is a very important rate factor, most people are able to obtain life insurance even if they have some health issue; however, they have to pay a higher premium. In some cases obtaining life insurance is not possible due to health issues. Therefore, get your life insurance while you are healthy to avoid higher premiums or rejection.
Making the right choice
Before deciding to approach an insurer for life insurance, decide on the amount and term you want to be insured for. Get a rough idea by calculating the expenses your family will be faced with after your death and how long they will need to supplement your lost income.
The cost of your insurance will be calculated by your insurer by taking all the above factors into account. Some factors cannot change your insurance rates, but it is important to find an insurance provider that can factor in your family’s unique needs to your life insurance policy.
Besides using the services of a professional broker or insurance consultant to find the right policy at the right price, online services can get you a quote from several Canadian insurers. It is always a smart idea to compare rates and companies before purchasing your policy and you can do so by visiting the AplusWealth life insurance page.
You can also simply contact us and ask questions.
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No matter if you know the life insurance you need or you require help to find the right life insurance policy AplusWealth Inc., will get you covered.
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