Tips for Understanding the Cost of Life Insurance

Having life insurance is an important part of making sure your family is taken care of after you're gone. It gives them a financial safety net during hard times after dealing with their loss. Before you sign up for any life insurance policy, you should know the true cost and whether or not you can afford the policy. If you have any questions about any of the concepts introduced, speak with a life insurance professional today in order to ensure you are set up for success going forward.

Average Cost of Life Insurance

The typical American will pay anywhere from $300-$400 per year for a life insurance policy. Individual costs can raise or lower this depending on several factors. Your classification, age, coverage amount and term length, insurance riders, and the type of policy all affect the final price.

What is a Classification?

Every single life insurance company uses classification to determine how risk categories for policyholders. Unhealthy term life insurance policyholders are charged more since they're more likely to die during the policy term. Some of the factors that affect your classification include age, health status, driving record, and hobbies. It may seem strange to see hobbies listed, but some hobbies are more dangerous than others. Frequent thrill seekers that like to go skydiving or rock climbing will have to pay higher life insurance rates than homebodies.

Coverage Amount & Term Length

The cost of your life insurance is also determined by the amount you need and the term length that you need that coverage to last. Policies with higher coverage amounts will cost longer, as will higher term policies that last longer. 

Term Life Insurance

Term life insurance is the only type of life insurance that expires. Permanent life insurance does not have this limitation but tends to be more expensive because of it. Most life insurance sold is a term policy that will last through the important years of growing up with your family. For example, a 30-year-old man can expect to pay around $20 a month for a term life insurance policy lasting 20 years.

Whole Life Insurance

Whole life insurance policies can be up to six to ten times more expensive than term life insurance policies because it lasts longer. Whole life insurance also has a cash-value component, which means premium payments are split between two sides, which can cause higher rates. Additionally, whole life insurance comes with more management fees associated with the account. Life insurance companies recoup these costs by charging higher policy premium rates.

Insurance Riders

Another factor that will affect the price of your life insurance quote are any riders you need to append to the policy. Most life insurance policies are designed to be customized to suit individual needs. Some riders even let premiums be returned at the end of a policy return, but inflation rates mean it's usually better to have invested that money. Riders that cover specific medical conditions are also available. These can be customized and tailored to individuals.