What are the factors that affect life insurance premiums?
Below are 13 different factors that affect the cost of life insurance.
1. Your age
Age makes the biggest difference in your life insurance premiums and often affects how many follow-up questions the insurer asks. The younger you are, the less likely you will die soon. Someone with an expected shorter life expectancy will pay more when they buy life insurance.
Here are sample annual premiums for a $500,000, 20-year level term life policy for a nonsmoking man in excellent health (Preferred Plus classification):
- 30 years old: $405
- 40 years old: $623
- 50 years old: $1,471
- 60 years old: $4,065
The insurer may also ask fewer questions if you're younger and applying for a smaller life insurance policy.
"A 30-year-old applying for a $100,000 policy may be a simple nonmedical form with a few questions about height and weight, smoking history and no blood or urine and you're done," says Gleeson.
2. Your gender
Premiums are usually lower for women than they are for men because their average life expectancy is longer.
Let’s take a look at the sample annual life insurance premium for a $500,000, 20-year level term life policy, but this time we’ll compare the cost of life insurance for a nonsmoking woman in excellent health (Preferred Plus classification):
- 30 years old: $336
- 40 years old: $516
- 50 years old: $1,114
- 60 years old: $2,873
As you can see, a woman can pay hundreds less annually on average for a 20-year policy.
However, for group insurance, men and women usually pay the same rates, says Rob McGee, senior director of absence and disability management for Willis Towers Watson, a benefits consulting firm.
If your employer gives you the option of purchasing life insurance at group rates, compare the premiums to the cost of getting coverage on your own.
3. Smoking status
Smoking makes a big difference in your rates because of the impact on mortality. Smokers can pay twice or three times more than what it costs a nonsmoker.
"Smoking more than doubles your mortality, regardless of age," says Gleeson. "It's a pretty important factor."
Here are sample annual premiums for a $500,000, 20-year level term life policy for a woman who is a smoker and deemed as Regular or Standard health:
- 30 years old: $974
- 40 years old: $1,801
- 50 years old: $4,012
- 60 years old: $9,066
If you’re a smoker, you may be able to get a more affordable policy if you have a group life insurance coverage option, such as through your job. Some group policies don't charge more for smokers if they're approved for coverage, says McGee.
4. Medical history
During the life insurance application process, the insurer will look at your medical records and review your personal health history.
"If the person had a heart attack and a stent put in, no heart damage, rigorous control of cholesterol and blood pressure and seeing their doctor regularly, the insurer will look at that very favorably," Gleeson says.
Your medical history affects your rate, but the specifics vary drastically by insurer. The impact can change over time.
"As medical advances take place, life insurance companies change how favorably they view things," says Jones.
Medical conditions that once caused an automatic rejection aren't as much of a problem now. They still affect your life insurance premiums, though.
"Medical histories that at one point would have not allowed a person to get insurance, now you have the potential of being covered," says Joel Jones, vice president and chief underwriter for Mutual Trust Life Insurance in Oak Brook, IL, and a Society of Actuaries volunteer.
For example, insurers once declined anyone who had Hepatitis C.
"But now it's something that's insurable because of new treatments and new medications. It's not a stagnant industry, and what was true even a couple of years ago is not always true today because of medical advances,” says Jones.
Another previous automatic denial was if someone had a heart attack.
"They weren't going to take a risk on you," says Gleeson. "But as we have learned more medical information, we've been able to stratify heart attacks."
Insurers also previously often rejected people who had cancer. However, insurers now request more information about the specifics of their disease and treatment.
"It depends on the type of cancer, how recent it was, and what the pathology report is," he says.
Insurers can have different guidelines based on their experience and research, so it helps to shop around with multiple companies if you have a medical issue. One insurer may reject you, while another may offer a competitive rate.
5. Cholesterol and blood pressure
Your cholesterol and blood pressure affect life insurance premiums, too.
The cut-offs can vary by company based on their own experience. According to MassMutual’s MyLifeScore calculator, insurers generally look for a:
- Normal systolic blood pressure -- 100-129 mm/HG
- Diastolic blood pressure --
- Normal cholesterol --
Controlling your high blood pressure or cholesterol through medication can help get you approved and pay a lower rate, says Gleeson.
6. Height and weight
Height and weight are important because it determines your body mass index (BMI).
"Build is a significant factor, especially if you're talking about Preferred and Preferred Plus rates because your height and weight do have a potential effect on mortality," says Jones.
People with a high BMI can end up having other medical problems. However, Jones says insurers have relaxed their height/weight requirements over the past few years. Insurers are generally looking for a BMI of 20 to 25 for the Preferred and Super-Preferred rates, says Gleeson.
7. Family medical history
Insurers generally want to know whether your parents or siblings died before age 60 from heart disease or certain types of cancers, such as colon cancer, breast cancer or prostate cancer, says Jones.
They aren't as concerned about whether your family members died of these conditions when they were older.
8. Motor vehicle record
Life insurers review your motor vehicle record, but in a very different way than car insurers. Jones says life insurance companies are looking at mortality risk when they review a driving record.
"If you see someone with a DUI, that's an indication of a higher mortality risk than someone who does not. Generally speaking, minor vehicle infractions aren't considered significant, but major traffic violations are generally taken into account,” Jones says.
9. Hobbies
Most hobbies won't make a difference, but dangerous hobbies can affect your rate.
"If you like hang-gliding, base-jumping or running with the bulls in Pamplona, there's a chance you'll face higher premiums than if you didn't engage in such dangerous activities," says Jack Dolan, vice president of public affairs for the American Council of Life Insurers. "That's because there's a clear relationship between these activities and deaths that would otherwise occur if you did not participate in them."
The insurer is likely to ask for more details if you mention a risky hobby on your application, such as mountain climbing.
"If they just go hiking in Vermont, that's not really going to factor into the underwriting decision," says Jones. "But if somebody is ice climbing and requires special gear or climbing Everest, those present a different type of risk and would be taken into account."
10. Frequent travel
Travel only affects your rates if you travel to very risky areas.
"For example, a person who travels to a part of the world riddled with trouble and violence puts themselves at risk," says Dolan.
Last year, many life insurance companies temporarily pulled back on issuing policies to people who had traveled to high-risk COVID areas before the virus was as prevalent in the United States. Otherwise, Jones says that foreign travel isn’t a big underwriting factor now if it isn’t deemed risky.
11. Coverage amount and length
A policy’s amount and length of time, if it’s a term policy, play a role in life insurance rates.
How much coverage directly affects the policy’s cost. Someone will pay higher rates for a $500,000 policy than a $250,000 policy and spend more for a 20-year policy than a 10-year policy.
Here are sample annual premiums for a $500,000 level term life policy for a non-smoking 40-year-old man in excellent health (Preferred Plus classification):
- 10 years: $357
- 20 years: $516
- 30 years: $790
An insurance company must consider the sum of death benefits covered by a policy, usually referred to as its "face value," against the length of the term. The longer a term’s length, the more likely an insurer will have to pay out a death benefit. So, they charge higher premiums for longer term life insurance policies.
12. Coverage type
Insurers offer many types of life insurance policies, but they may be generally categorized as either:
- Term policies
- Permanent policies
Term life
Term policies cover a specific period, commonly lengths of 10, 20 or 30 years. During that time, the insured pays annual premiums to maintain the policy. Should the person die while the policy is in effect and in good standing, the life insurance company pays predetermined sums of money, known as death benefits, to the policies' named beneficiaries.
If you die after the term has expired, the life insurance company isn’t liable for payment of any death benefits. Instead, the company retains the sum of premium payments that were paid over the term of the policy -- unless it’s a return of premium policy, which gives back the premiums at the end of a term life policy.
Broadly speaking, because insurance companies can reliably expect to receive your premium payments for a term policy but won’t be liable for any benefits once it expires, term policies are less expensive than permanent life insurance policies.
Permanent life
Permanent policies like whole life and universal life differ from term policies in that they offer coverage with no predetermined length of term. Instead, these policies provide you with coverage until your death.
The other defining characteristic setting permanent policies apart from term policies is that they include a cash value component. As you make your premium payments, the insurance company applies a portion of the money toward its cash value.
This lets you accrue equity in the value of the policy, which may be accessed or leveraged while you’re living. The cash value may earn interest, and some policies pay dividends. These earnings aren’t taxed and may be reinvested, used to pay premium costs, or obtain additional coverage.
The life insurance company upon the policy holder's death retains the cash value component of a permanent policy and pays out only the death benefit. If you surrender the policy before your death, you give up the death benefit but will be paid the balance of the policy's cash value.
Given that there’s no term limit on a permanent policy, its beneficiaries are effectively guaranteed to receive payment of benefits upon your death (less any outstanding loans or other liabilities due to transactions you made per the terms of the policy). All this generally adds up to permanent policies being comparatively more expensive than term policies, even though permanent policies tend to provide lower death benefits than term policies.
13. Criminal record
If you have a criminal background, you may feel some trepidation about life insurance and be bracing yourself for costly coverage. You may even presume you’re not eligible for life insurance at all, but this is not necessarily the case.
It’s generally advisable if you have a felony conviction or are someone who has been charged with a felony to wait some length of time -- at least a year, if you can -- before you try to obtain life insurance.
Insurance companies consider people with criminal histories, particularly felons, a higher risk for several reasons, not the least of which is that the data they use indicates that people with criminal backgrounds tend to die earlier than those without them.
If you’re charged with a felony and pending trial or are currently incarcerated or on probation, you generally shouldn’t apply for life insurance, as the insurance company will automatically deny the application.
You must and should be completely honest when applying for life insurance. Insurance companies run a comprehensive background check for applicants. If you’re found to have lied or withheld information, the company automatically denies your application. Moreover, that dishonesty severely limits your chances of another company even considering your application.
People with a criminal background are encouraged to consult a life insurance broker before applying for coverage.
Joe Cunningham, CLU and sales vice president with Northeast Brokerage Inc., says there’s no simple answer for what someone with a criminal background might expect when they’re looking for life insurance. However, those with a criminal record shouldn’t forego an assessment or rule themselves out prematurely without talking to a broker, Cunningham adds.
An individual's insurability is assessed and rated on a case-by-case basis, and the consultation will not cost them anything or affect their rates,” Cunningham says.
The best approach for someone with a past felony conviction is to reach out to an experienced broker who will take your situation into account, reach out to carriers for a risk assessment, advise you accordingly, and do the work required to secure a suitable and affordable life policy, Cunningham concludes.
Luke Henshaw contributed to this article.
