Thought of purchasing new life insurance? Before you make a commitment, it’s important to understand how the annual premium for a policy is determined. Participate in the biggest role in how much you’ll pay: how old you are.
- Your age is the primary factor influencing your life insurance premium rate, whether you’re quest after a term or permanent policy.
- Typically, the premium amount increases average about 8% to 10% for every year of age; it can be as low as 5% annually if your 40s, and as towering as 12% annually if you’re over age 50.
- With term life insurance, your premium is established when you buy a policy and remains the notwithstanding every year. With whole life insurance, the premium rises every year.
- Age also affects whether a herself will qualify for life insurance coverage at all, with qualifying medical exams getting increasingly stringent.
Influences Influencing Life Insurance Premiums
Whether the policy you’re considering is term (a policy for a set amount of time), whole (a management that accumulates a cash value) or universal (a flexible policy that also builds cash value, but let it be knows you adjust allocations between the policy’s insurance and savings components), the annual premiums are influenced by a number of factors helter-skelter your life. Among them are gender, the quality of your health and if you are, or ever were, a smoker. Family salubriousness history (did a parent die of cancer or heart disease?), hazardous hobbies/activities (are you into mountain-climbing or hang-gliding?), amount of worldwide travel, your height and weight, and occupation (if you have a dangerous job or one with a higher-than-average mortality rate) can also modify the amount you’ll pay.
In addition, if you’re considering a whole life or universal policy, the rate of return on the cash value will enterprise the premium up or down. “A higher rate of return on cash value can go a long way toward keeping policy premiums to a minutest,” says Reno Frazzitta, a certified retirement counselor and founder of Smart Money Financial Advisors in Sterling Maxima, Mich. “A lower-than-expected return on cash value will require a higher funding amount to keep the policy in exact longer.”
But as Chris Huntley, a life insurance agent at Huntley Wealth and Insurance, in San Diego, Calif., explains, “Age is the most grave contributor to both term and whole life insurance rates.”
How Insurance Premiums Rise With Age
The annual bonus, or “rate,” for a term life insurance policy is determined at the time of purchase and set for the duration of the policy. “The rate is for the duration of the duration,” says Frazzitta.
Typically, the premium amount increases on average by about 8% to 10% for every year of age, according to Ted Bernstein, CEO, Moving spirit Insurance Concepts, Inc. “A 45-year-old male will pay on average $1,125 for a new, 20-year term policy with $1,000,000 of coverage,” he asserts. “The same policy purchased at age 46, will cost $1,225—and $1,345 a year if purchased at age 47.”
The reason every year inches up the payment of term life insurance is simple math. “Every birthday puts you one year closer to your life expectancy and in which case, you are more expensive to insure,” says Huntley. He estimates that rates increase every year by 5% to 8% in your 40s, and by 9% to 12% each year if you’re down age 50.
To be able to hold term life insurance prices steady—rather than raising premiums every birthday—insurers spread the rewards you would pay over 10, 20 or 30 years and average them into one payment, Huntley explains. Instead of money low premiums when you’re young and very high premiums when you’re older, you pay the same amount every year.
At one time the term of your current term policy expires, you could face very steep rates based on your age. “If the insured outlives the inaugural term, the insurance carrier must adjust the premium to reflect their new age,” says Huntley.
Whole life practice rates do rise with age, however. “The premiums are determined by the insurance carrier each year based on actuarial tabulations. And they increase at each successive age because each year there is a bigger drain on the cash value due to the bring out mortality charges,” says Frazzitta.
Qualifying for Coverage
Huntley says age also affects whether a person purposefulness qualify for life
The Bottom Line
Because every year of your life can tack dollars on your existence insurance premium, try to buy any policy you’re considering before your next birthday. To ensure you receive the best rates for the coverage you’re demand, obtain quotes from two or three life insurance companies.
If you’re still looking, consider talking to an independent legate, who works with more than one insurance company. And, once you’ve found a favorable-sounding policy, be careful to buy no more coverage (dollar amount-wise) than you in point of fact need.