How much does life insurance cost?

Policy pricing explained.

The cost of life insurance can vary greatly from company to company, even for the same amount of coverage.

Knowing how insurers determine your premiums can help you understand why all life insurance policies aren’t the same.

How are life insurance premiums determined?

Life insurance premiums are based on a variety of factors that are evaluated during underwriting (the process by which the insurance company examines the risks, decides how much life insurance to offer an individual, and sets the price). While companies weigh these factors differently, they have similar concerns. For all insurance companies, the goal is to determine how much risk the company will take on if it decides to insure an individual. Individuals who are found to be a lower risk (less likely to die early on) will usually pay less—or be offered more coverage—than those who are considered to be higher risk. Here are just a few of the factors that companies typically consider:

Age:

The age of an applicant is one of the most important factors in policy pricing. The younger you are when you get coverage, the lower your premiums are likely to be.

Gender:

Since women typically live longer than men, their premiums are often lower than they would be for a male who is similar in age and health.

Tobacco use:

Tobacco products have been proven to increase the risk of heart disease, lung cancer, emphysema, and countless other medical conditions. As a result, tobacco users will pay more in premiums than nonusers.

Health and family history:

Health factors are another major consideration that insurance companies look at when determining premiums. Since people with a history of health issues, or whose families have a history of health issues, are more at risk than healthy individuals, their premiums will reflect the additional risk.

Criminal history:

While criminal history is not necessarily a health risk, it may reveal a pattern of risky behavior that could result in higher premiums.

Occupation:

Since the risk of death or injury are higher in certain occupations than others (firefighters, police officers, construction workers, etc.) they may have higher premium payments than people with low—risk occupations.

Amount of coverage requested:

As you might imagine, the more insurance you get (the higher the face value), the higher the premiums are likely to be. Fortunately, most people overestimate the cost of life insurance so you may be able to get more protection than they think.^[1]

Shop for value, not price

You have to think beyond just the cost and face amount. The level of service the insurance company provides, the company’s financial strength, and the flexibility of its products are important attributes that may increase the average cost of their life insurance policies, but they also improve the value of the policies. It’s important to consider all these factors when evaluating the quality of your coverage. 

How to lower your life insurance premiums

If you are thinking about buying life insurance in the future, you will be happy to hear that there may be some proactive steps you can take to help lower your premiums.

• Stop smoking: Smoking has proved to have significant health consequences, so smokers typically receive higher premiums than nonsmokers.
• Limit alcohol use: Heavy drinkers have a higher risk of health complications and will often pay more for their coverage.
• Adopt a healthy lifestyle: The state of your health is one of the most important factors life insurance companies look at when determining your premiums. A healthy diet, regular exercise, and proper use of medications can go a long way toward reducing your premiums.
• Eliminate risky behavior: Are you a skydiver, mountain climber, or other extreme sports enthusiast? If so, your hobbies may cause you to receive higher rates than the average consumer.
• Watch your driving habits: A history of speeding, DUIs, or other potentially reckless behavior on the road will not just affect your auto insurance rates; it could affect your life insurance rates as well. 

5 things to consider when buying life insurance.

1. Company strength:

The policy you buy is only as good as the company that guarantees it. A company with a good track record and solid scores from ratings services such as A.M. Best, Fitch, Moody’s, and Standard & Poor’s can charge more because the company has the financial resources to weather extreme events, like wars, financial crises, or natural disasters.

Another factor to consider is corporate governance. Publicly traded companies traditionally make decisions based on their shareholders’ best interests, namely maximizing profits and investor returns. Mutual companies like New York Life have no shareholders, so they don’t have to cater to shareholders’ short-term concerns. They answer only to you, the policyholder. This perspective can make quite a difference, especially when you are purchasing a product (like life insurance) that may not be “used” for 30 years or more.

2. Agent relationship:

How much do the company’s agents know about the products they sell? Are they on top of changes in the industry? Will they stay in touch after they sell you the policy? Will they review your needs periodically to make sure you continue to have the coverage you need as your life changes? Buying directly from a website may cost less, but you probably won’t get the same level of service. (See what we mentioned about value above.)

3. Customization:

Are you being offered a policy based on your specific needs or on the needs of the issuer? The availability of additional riders and tailor-made payment plans can make a company’s policies truly customizable, offering the flexibility you want to protect those you care about most. Your New York Life agent will work with you to customize your policy to your needs and budget.

4. Cash value growth potential:

Term life insurance can be a smart solution that allows you to lock in your premiums for a set time period at a premium that may better fit your current budget. A whole life policy gives you the ability to grow cash value and, in many cases, to earn dividends as well.¹ As a result, the value of a whole life policy typically increases over time.

If whole life insurance is not an option for you right now, some companies have a conversion privilege that lets you convert some, or all, of your term life insurance to whole life during a time period spelled out in your policy. You may even want to consider purchasing a combination of term and whole life insurance.

5. Range of products:

Bundling your policies may qualify you for a discount. Purchasing additional financial products that the insurance company offers is convenient, and it can save you time and money.

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¹While dividends are not guaranteed, eligible whole life policies will receive an annual dividend when declared.

^[1]“2023 Life Insurance Fact Sheet” LIMRA.com