When shopping around for a life insurance policy, you may be overwhelmed by the options available to you. Understanding how much an average life insurance policy costs is a step in the right direction. Here’s everything you need to know about the premiums you’ll come across in your search:
Life Insurance Types Ranked From Least to Most Expensive
- Term Life Insurance
- Universal Life Insurance
- Indexed Universal Life Insurance
- Flexible/Variable Universal Life Insurance
- Whole Life Insurance
Sample Rates For Average Life Insurance Cost
The following rates are based on averages for a 40-year-old male with average health, non-smoker, for $100,000 of coverage.
| Policy Type | Average Premium | Coverage Period |
|---|---|---|
| Term Life Insurance | $19.00 per month | 20 Year Term |
| Universal Life Insurance | $85.00 per month | Permanent |
| Indexed Universal Life Insurance | $110.00 per month | Permanent |
| Flexible/Variable Universal Life Insurance | $115.00 per month | Permanent |
| Whole Life Insurance | $129.50 per month | Permanent |
What Factors Go Into Classification?
The average life insurance costs calculated above were focused on the standard classification, which is where 70% of insurance customers are placed. A number of factors come together to determine your classification, so here’s quick a peek behind that curtain:
- Age
The older you are, you’re likely you are to pay more for your policy. - Gender
Statistically, women live longer than men, which means that life insurance premiums for men tend to be more expensive. - Build
Insurance companies take your height and weight into account when determining your policy class. - Medical History
Your family medical history and your prescription history help insurers calculate the risk of covering you. - Prescription History
Your history of prescribed drugs and medicine also contributes to your assessed risk by an insurer. - Lifestyle
High-risk hobbies, like skydiving or base jumping, that carry a high risk of death are likely to affect your policy class. - Financial History
Your credit history also goes a long way toward calculating your risk to an insurer. - Nicotine Usage
On average, smokers pay 2-3 times more for life insurance than non-smokers - Driving/Arrest Records
Reckless driving, DUIs, and arrests on your record stand to negatively affect your classification, as well.
Taken together all of this data helps insurance companies understand how much of a risk you are to insure. Your classification then goes into determining how much you pay for your premiums.
Term Life Insurance
Term life insurance is the most basic policy type. It provides coverage for insureds over the course of a specified term, usually 10, 20, or 30 years. Sometimes called “pure insurance,” it doesn’t carry any bells and whistles like many permanent policies. This makes it the most affordable option, for those looking to get coverage.
Universal Life Insurance
Universal life insurance is for people who want permanent life insurance, but don’t want to pay too much in terms of premium. Your premium covers both your insurance policy and a portion of it defers into a cash value. As a result, this cash value grows over the course of the policy’s lifespan. These premiums rise steadily as the policy matures and that cash value helps offset those costs.
Indexed Universal Life Insurance
Indexed universal life insurance takes the principles of a universal life policy’s cash value component, but instead invests that cash value into indexed funds. These indexed funds are similar to mutual funds, and the money grows in a similar fashion. But there’s also a cap on how much a policy can gain and lose from these funds.
Flexible/Variable Universal Life Insurance
Variable universal life insurance policies, on the other hand, are even more volatile/risky versions of an indexed universal policy. Instead of indexed funds, part of the premiums go in the stock market as an investment, and there are no limits on what the insured can gain or lose. As with anything associated with the stock market, this is a risky investment in terms of life insurance.
Whole Life Insurance
Whole life insurance is there for people who want permanent life insurance, but don’t want the risk attached to universal policies. Because of this guarantee, you’re almost certainly going to pay more for your premiums. It is the ideal policy for someone who wants to use a life insurance policy as an investment vehicle.
Final Thoughts
All of this information listed here is key for you making the right decision for your life insurance policy. Knowing the ins and outs helps make you a stronger, more knowledgable consumer.
A Brief Note About Life Insurance Policies As An Investment Vehicle
True Blue Life Insurance does not recommend using a life insurance policy as an investment except for a very few specific situations. Specifically, the only people who should use these policies as an investment are those in the upper tax brackets. If you don’t land in this category, you are better off exploring other financial vehicles.
As a final rule of thumb, your annual life insurance premiums should not be more than 2% of your salary. So, if you’re making $100,000, you should only be paying $2,000 for your life insurance.
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