Buying life insurance? These factors determine how much it costs

Life insurance doesn’t have to be costly. Learn what factors determine how much you pay out of pocket. (iStock)

Life insurance ensures your loved ones are financially supported when you die. However, LIMRA’s 2020 Insurance Barometer Study found that only 54% of Americans have life insurance — down nine percentage points over the past decade. But the intent to purchase is at an all-time high, with 36% of Americans intending to purchase life insurance within the next 12 months.

So what’s the holdup? The study also found that more than half of Americans estimated the cost of a term life insurance policy to be more than three times the actual cost. There are many factors that influence the cost of your life insurance policy but it’s probably not as expensive as you think. You can visit Credible to explore your life insurance options.

Types of life insurance

There are many options for buying life insurance but there are two main types: term life insurance and whole life insurance. What you choose depends on your needs and your financial situation.

1. Term life insurance

Term life insurance guarantees payment of a death benefit to a designated beneficiary if the covered person dies during a specified term. When the policy expires after a certain number of years (usually 10 to 30 years), the policyholder can renew for another term, convert the policy to permanent coverage or terminate the policy. The policyholder also pays monthly premiums.

Term life insurance policies are generally regarded as the more affordable option.

If you have loved ones that financially rely on you, term life insurance is an excellent option unless you have an unusual financial situation or lifelong dependents. In this case, a more permanent type of life insurance policy would be better suited.

2. Whole life insurance

Whole life insurance covers the policyholder for the remainder of their life as long as they pay their premiums in a timely manner. Whole life insurance is a permanent coverage option.

This type of insurance has a death benefit, as well as a cash value — a tax-deferred savings account that accrues interest at a fixed rate — included with the policy. Tax-deferred means you don’t pay interest on gains while they’re accumulating.

A whole life insurance policy costs five to fifteen times as much as a term life insurance policy. That being said, it’s typically the best choice for high-earners or those with lifelong financial obligations

If you need help choosing a life insurance plan, you can explore pricing and find the right life insurance plan that fits your needs on Credible.


What factors influence the cost of life insurance?

What you pay for life insurance is determined by the level of risk you pose to the insurer. Insurers look at several elements to determine your risk level. While other types of insurance companies may consider your credit score when determining what you pay, life insurance companies assign you an insurance score based on your financial history, not your credit score.

Here are some of the biggest factors that influence the cost of life insurance:

  1. Age
  2. Gender
  3. Health
  4. Occupation
  5. The policy

1. Age

Age is the number one factor that influences your life insurance premiums. Someone who is younger will pay less than someone older, even if they are in equally great health.

2. Gender

Insurance companies consider men to be at a higher risk and can end up paying thousands of dollars more than women for a term life policy. On average, women tend to live longer than men and usually pay premiums for a longer period of time.

3. Health

Your overall health and whether you smoke is another determining factor for life insurance rates. Smokers can end up paying double in life insurance premiums compared to non-smokers, according to Business Insider.

The underwriting process for most insurers includes a medical exam to determine your state of health. Some companies may offer a policy without an exam but at a higher rate.

4. Occupation

Some jobs are more dangerous than others and insurers take that into account when determining your rate.

5. The policy

Life insurance policies that account for larger benefits over a longer period of time have a higher price tag than those issued for smaller benefits over less time. Some types of life insurance are also more expensive than others.

Visit Credible today to learn about the life insurance options available to you.


How much life insurance do I need?

The amount of coverage you need depends on your family’s needs, your financial situation, obligations and priorities. If you’re the primary income earner, you can include enough to:

  • Replace your income
  • Cover your mortgage or rent
  • Pay off outstanding debts
  • Pay for childcare expenses
  • Save for college
  • Household duties
  • Funeral expenses

You need to think about what needs to be covered in your absence. If you have kids, the younger they are and the more you have, the more coverage you’ll need.

When you’re in the market for life insurance, you can compare life insurance companies and shop their plans via Credible.


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