Life insurance isn’t something people often think about, but having a life insurance policy is an important way to make sure that your family is taken care of when you pass away. When choosing a life insurance policy, there are a wide variety of options. Here are five key factors to consider that play into the costs of life insurance.
1: Health of the Policy Holder
When looking into life insurance, your health plays a critical role in your cost to coverage ratio. For people in good health, your premium is likely to be significantly lower relative to the value of the policy. In essence, life insurance underwriters are looking to add people to the policy pool who are not likely to draw on their policy very quickly. When planning to move forward with a life insurance policy, take some time to think about your general health. Not only can making lifestyle choices like quitting smoking or starting regular exercise improve your quality of life, but these choices may also make your life insurance cheaper as well.
2: Value of the Policy
This concept is relatively straightforward. The amount you’ll pay for your premium is tied directly to the value of the policy that g your beneficiaries. For example, the premium for a 500k life insurance policy will be higher than for 250k. The reason for this is simple. Life insurance companies are looking to balance the amount you pay with the amount they will eventually need to pay out in a way that benefits both parties. Thinking about the amount you want to pay compared to the money your family may need when you pass on will help you decide on what coverage you need.
3: Age
Buying life insurance at a younger age will almost always result in a lower premium than if you purchase your policy once you’re getting older. This goes back to the fact that life insurers are looking to ensure stability and long term benefit for themselves and the customer. Younger policyholders are more likely to pay their premium for longer, resulting in a more affordable rate per year than someone more likely to need their policy benefits sooner.
4: Term vs. Life
The type of life insurance policy you have will significantly impact the rate you’ll pay in premium. Term life insurance is coverage, and premium payments, that only go on for a fixed term. If you pass away during that term, your beneficiaries will receive the policy payout. If you don’t, then you may have saved on the initial term policy, but purchasing a new policy could be more expensive. Lifetime policies are precisely that. As long as you keep paying your premium, you’ll continue to receive coverage. If you take the other factors discussed here into account, lifetime policies may or may not be more affordable in the long run.
5: Gender
Simply put, life insurance is actuarial science. Life insurance companies use aggregated data to come up with premium costs, and the most important data is life expectancy. Many of the tips above all lead to life expectancy, and unfortunately, for the men out there, women have a life expectancy over three years longer than men do. As such, women tend to pay less for their life insurance premiums.
These key factors are all important to consider when shopping for life insurance. Before purchasing a policy, make a list of the ways these factors impact what you want or need your coverage to be. It’s always better to prepare before buying anything, especially life insurance.