Cost of Life Insurance

How Much Does Life Insurance Cost?

The cost of life insurance may be less expensive than most people think. A recent survey found 80% of consumers assume life insurance costs more than it actually does. Millennials overestimated the price by 213% while Generation Xers overestimated it by 119%, according to the 2015 Insurance Barometer study, which was conducted by the Life Insurance Marketing and Research Association and Life Happens, a nonprofit group.

So, how much does life insurance cost? That depends on many factors, including the type of life insurance you choose.

With term life insurance, you choose how long you want your policy to be in effect, often 10, 20 or 30 years. Your premium remains the same during those years. When the term ends, you have the option to keep the policy and pay higher rates that increase each year, or apply for a new policy that offers a new level premium period.

Permanent life insurance has a savings component and is intended to remain in force for life. Some of the money you pay into your permanent life policy is guaranteed to grow. You have access to the cash value during your lifetime for loans or withdrawals, although if it's not paid back it could affect the amount of the death benefit.

With that in mind, Consumer Reports (CR) compared policy prices for a 40-year-old man in perfect health purchasing a $500,000 policy. CR estimated that a 30-year term life insurance policy could cost that person $660 a year, whereas a permanent policy for the same person could cost $6,760 yearly. That’s a big difference in cost, but the benefits are quite different as well. The CR report projected the permanent policy could be worth far more than the $500,000 death benefit if the policyholder were to die at age 90. If the person with a term policy were to renew or get a new term policy at age 70, the premiums would no longer be level, whereas permanent insurance rates generally stay the same throughout the policyholder’s life, and the cash value component can provide supplemental retirement income or other benefits. A person who doesn’t renew his or her term policy has no benefits and no cash value built up.

Here are some other decisions you’ll make when choosing insurance options.

Amount of insurance coverage: You’ll need to figure out how much insurance you want. An amount equivalent to seven to 10 times your salary is generally recommended. However, this isn’t an ironclad rule. If you’re staying home with the kids, you might want to base the figure on estimated costs for daycare or babysitting until they’re old enough to stay home alone after school. Some use life insurance benefits to ensure they can pay for a child’s college education or to pay off a home mortgage in full. A life insurance calculator can help you determine how much you need. Here are some factors that can affect life insurance rates.

Age: Typically, the younger you are, the less expensive your life insurance policy will be. The likelihood of someone dying generally increases as he or she ages, so a policy with the same terms will cost less for a 20-year-old than for a 65-year-old.

Gender: Life insurance for women usually costs less than for men because women live longer, according to the statistics from the Centers for Disease Control and Prevention.

Health/pre-existing conditions: If you’re a smoker, the policy will probably cost you more, given the health risks associated with smoking. Those with pre-existing conditions like diabetes may also have higher life insurance premiums than those without. If you have other medical conditions, the cost can also be affected.

Occupation: Your job matters when it comes to life insurance rates. If your job has a higher rate of risk than a typical office occupation, you may fall into a more expensive insurance category. Your motor vehicle report – such as speeding tickets and other infractions – may also impact your life insurance rate, as they indicate how safe you are behind the wheel.

Talk to an insurance agent or call Nationwide at 844-538-9998, to talk about your life insurance needs and to find the policy best suited for you.

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