Life insurance companies use a series of rate bands to help calculate premiums for term life insurance policies. Companies typically use three or four bands. Each band represents a coverage amount range, and within each band, the price per thousand dollars of coverage is found.
For example, the first rate band is usually the most expensive and in most cases, is used for coverage amounts from $100,000 to $249,999. The second rate band is slightly less expensive and is used for amounts of $250,000 to $999,999. The third rate band is commonly used for coverage amounts of $1 million and above. This band usually offers the lowest cost. There may be slight variations in the number of rate bands and their amounts from company to company.
Think of it like buying in bulk. If you buy a six-pack of toilet paper, you will likely be paying more for each roll than if you bought a 12 pack. The savings would likely be even greater if you bought a 24 or 36 pack. Life insurance works in a similar way with rate bands.
Let’s look at a case study of a healthy, 40-year old male named John. At today’s current rate, John would pay $139.25 annually for a 10-year term life insurance policy with a coverage amount of $175,000 from a top rated insurance company. Oddly enough, John can increase his coverage amount to $200,000 with the same company, and his premium would decrease to $130.00 annually!
In another example, the same thing happens near the end of the second-rate band. If John buys a 10-year term life insurance policy with $900,000 coverage, he will pay $371.00 annually. However, if he increases the coverage amount $1 million, the premium decreases to $365.00 annually. This is the power of rate bands and knowing how to use them to your advantage.
The lesson here is to run multiple quotes at different coverage amounts to ensure you get the most for your money. You can run as many quotes as you’d like with our Term Life Insurance Quoting System.
Please also note our system automatically provides two additional free quotes for different coverage amounts with every quote you request. This allows you to quickly compare the premium quote you requested with quotes for other amounts of coverage.