Term Life Insurance Cost: Understanding the Cost of Life Insurance, and 7 Ways to Make It Cheaper
Intro to Term Life Insurance Cost
Many people assume they can’t afford term life insurance.
In actuality, current term life insurance prices make this type of insurance more appealing than permanent policies. Term life insurance policies cost much less than other options, which is part of the reason this type of coverage is so popular.
Types of Term Life Insurance and Their Costs
There are three main types of term life insurance. Each has its own unique characteristics but operates in the same way as any other term life insurance policy.
Fully Underwritten Term Life Insurance
These policies are the most traditional term policies. Once you apply for coverage, you are then required to move forward with a health exam and wait for the underwriters at the insurance company to review all of the information and determine your premium. Many insurance companies are moving away from this model for lower benefit levels. However, this is still the best choice to get the lowest possible term life insurance costs.
No Medical Exam Term Life Insurance
No exam life insurance is becoming more popular, especially for people who are looking for smaller death benefits. Also known as “simplified issue,” this type of policy allows the insured to skip the medical exam usually for coverage under $300,000 (the amount varies based on the insurance company). The insurance company reviews digital medical, pharmacy, and public databases during the underwriting phase. This makes these policies slightly more expensive than fully underwritten term life policies, as the insurance company absorbs more risk by not having up-to-date physical exam and lab results to measure the applicant’s current health status.
Return of Premium Term Life Insurance
A return of premium (ROP) policy is similar to paying rent for an apartment and getting all of your rent back when the lease ends. These policies are also considered a “forced savings plan” because you end up getting a bulk payment at the end of the term if the death benefit is not used. While these policies are more expensive (compared with the average cost of all types of term life insurance), many people like the idea of having all of their premiums returned to them instead of having the insurance company keep them.
What Is the Average Cost for Term Life Insurance?
The average cost for term life insurance varies, based on your age and health. The younger you are the healthier you tend to be, and insurance rates tend to reflect that. As you get older, the risk of death and health issues increases, and so do the costs for term life insurance.
Cost of Term Life Insurance for 20-year-olds
The younger you are the better the rates are going to be. People in their twenties have less risk of death and are typically healthy, which gives insurance companies the confidence to insure them at the lowest costs possible. Monthly life insurance premiums for people in this age group are about as expensive as a meal at a fast food restaurant.
Below, we have an example of a 23-year-old non-smoker looking for $100,000 in term life insurance:
Cost of Term Life Insurance for 30-year-olds
Term life insurance is only slightly more expensive for people who are in their thirties than it is for those in their twenties. Minor health issues can begin to arise, and the chance of death increases somewhat. Insurance companies adjust their rates for people in this age group based on the amount of risk they present. But, term life insurance is still affordable, and monthly premiums are less than the average price for dinner out with friends.
Below is an example of a 35-year-old non-smoker looking for $100,000 in term life insurance coverage:
Cost of Term Life Insurance for 40-year-olds
Many people dread turning 40, but insurance companies don’t look at turning 40 as a significant risk. Although the odds of having major health issues increase, advances in health care have helped create manageable risks that keep life insurance costs down for everyone. Unfortunately, some people in their forties think that term life insurance is too expensive, when in reality life insurance coverage costs less than an average gym membership.
Below is an example of a 45-year-old non-smoker looking for $100,000 in term life insurance:
Cost of Term Life Insurance for 50-year-olds
You will start to see a substantial increase in price for life insurance once you reach 50. However, the cost of term life insurance at 50 is not as high as you might think. Traditional term life policies that require a medical exam could save you $200–$300 or more per year when compared with the no exam term life insurance option. It’s not uncommon to find $100,000 in term coverage for as little as $25–$35 per month. That’s less than what you would spend to take your family to the movies.
Below is an example of a 55-year-old non-smoker looking for $100,000 in term life insurance:
Cost of Term Life Insurance for 60-year-olds
Finding affordable life insurance when you’re in your sixties is not as impossible as it may seem. While some insurance companies begin charging high rates to deter taking on the additional risk, others see it as an opportunity to step into an underserved market. The risk of death increases with age, and rates for life insurance will naturally reflect this fact. Even so, finding low-cost life insurance in your sixties is possible. Some of the least-expensive policies cost less than $100 per month.
Below is an example of a 63-year-old non-smoker looking for $100,000 in term life insurance coverage:
Term Life Insurance Cost Increases as You Get Older
It isn’t a surprise that as you get older your life insurance rates slowly go up. But when you buy a term life insurance policy while you’re younger, you can lock in lower prices and minimize your cost for life insurance as you get older. The longer you wait, the fewer chances you’ll have to purchase affordable life insurance.
Health Conditions Affect Term Life Insurance Cost
It’s true that health conditions can cause an increase in the cost of term life insurance. However, some insurance companies are more forgiving than others when it comes to an applicant’s health history. Just because someone has a history of diabetes or cancer doesn’t mean that all companies will take the same view or rate the person the same.
People who have significant issues with their health history usually find that an independent agent can help make the process easier and the coverage more affordable. These agents know the underwriting rules for most insurance companies and know which companies are more lenient when it comes to various health issues. Working with an independent agent can help keep the cost of term life insurance as low as possible.
7 Ways to Make Term Life Insurance More Affordable
Avoid Extra Riders
Optional extra coverage, called “riders,” can raise the price of life insurance coverage. In most cases, these add-on features are simply an “upsell” to make the policy premiums higher — which means more commission for the insurance agent. However, there are two riders that can be very important and should be considered.
Accelerated benefits: This tends to be a regular rider on most policies and in many cases comes at no additional cost. Also known as “living benefits,” some policies with this rider act as both a life insurance policy and a long-term care policy that provides access to the death benefit if the policy holder is diagnosed with a terminal, chronic, or critical illness. This extra benefit allows the policy holder’s family to cover major his or her medical bills and offset other financial issues while the policy holder is still alive.
Conversion rider: Term life insurance policies often offer the option to convert all or part of the policy into a whole life policy without having to undergo more underwriting. This rider allows the policy holder to maintain coverage beyond the end of the term for the rest of his or her life, as long as the premiums continue to be paid.
The conversion rider is extremely popular, and many carriers provide it at no additional cost.
Quit Using Tobacco/Marijuana/Vaping
It’s no surprise that insurance companies don’t like it when you smoke. They feel the same about using any form of nicotine or THC (the active ingredient inside marijuana). Unfortunately, quitting today won’t do much for your rates right now, but once you’ve stopped using these products for at least 2 years, you may be able to ask that underwriters review your policy.
Make Changes to Your Current Health
The healthier you are the less risk you are to the insurance company. The less risk you are the lower the rates will be. Taking steps to improve your health can help save you money in the long run, even if you currently have a policy.
Be Smart About the Dollar Amount
One of the most significant ways people pay more than they have to is by being “overinsured.”
Some insurance companies have their agents try to convince you to buy 3 to 5 times more coverage than you need. They use slick graphics, or a presentation packet called a “Needs Analysis.” This technique is typically used to increase the agent’s commission — the higher the dollar amount of your policy (or policies), the more commission the agent receives.
Ethical agents will tell you there’s no “magic” formula to determine how much life insurance you need. It depends on what you want to leave for your loved ones. For most people, a $250,000 term life insurance policy works very well and is extremely affordable. Others may need a little more.
If the agent you’re talking to seems to be pushing a certain dollar amount, we strongly suggest getting a second opinion from another independent agent.
Annual Payment of Premium
Much like the concept of buying in bulk, paying for life insurance by the year can save you up to 10% when compared with paying month to month. Also, paying annually helps prevent you from forgetting to make a payment and causing your policy to lapse for non-payment. The total amount of savings varies by insurance company.
Stack Life Insurance Policies
As your life evolves, so should your life insurance. The needs you have in your twenties probably won’t be the same as the needs in your forties, and your life insurance should reflect those changes.
Being aware of the need to protect your family’s financial security as your liabilities grow is critical, but that doesn’t mean you should buy one large policy to cover everything when you are in your twenties.
Many people stack their coverage with term life insurance to keep themselves protected and cancel the policy when it’s no longer needed. Here’s an example:
- Joe buys a $250,000 term life insurance policy to cover five years of his income if he dies.
- Joe and his wife buy a $180,000 house and then buy a 30-year level term life policy to cover the house if he dies.
- Joe buys a new car and purchases another 10-year term life insurance policy while he’s making payments on it to ensure that it’s paid off when he dies.
By carving out his debt coverage in such a way, Joe can maintain more control over his protection. And, he’s not saddled with unnecessary premiums for the amount of coverage he needs to protect his family.
Always Shop Independent
Independent agents are the only ones who are capable of helping you find the best prices and the protection that best fits your needs. Branded agents who work for the companies you see on TV commercials can only offer you what their company tells them to offer. Independent agents, on the other hand, can shop dozens of insurance companies and find the one that works best for your needs and situation.
Questions About Term Life Insurance Cost
What affects the premium rates of my term life insurance?
Your age, health, and location will all affect the cost of a term life insurance policy. A dangerous occupation or a hobby like skydiving will also likely increase the premium. In general, the younger and healthier you are the lower your term life insurance costs will be.
Which term life insurance should I buy?
When shopping for and comparing the cost of term life insurance, we recommend that you look at a guaranteed level term policy because the premiums are fixed and are guaranteed not to increase during the time you have the policy.
How does term life insurance work?
The best way to understand how term life insurance works is by looking at it like renting an apartment. With term life insurance, you are “renting” coverage for a “term,” or a period of time. When you reach the end of the term, you may be able to renew the coverage at a (usually much) higher cost.
How much life insurance do I really need?
At a bare minimum, you’ll want to cover your current debt load and have some extra to cover funeral expenses and possible medical bills. In most cases, a $250,000 policy works very well. But, each person has his or her own unique needs. An independent agent can help you determine the best amount of coverage that will fit your budget.