How Term Life Insurance Rates Are Calculated
How term life insurance rates are determined depends on various factors. When setting rates, insurers consider age, driving record, health, occupation, coverage amount, and hobbies. For example, while a 25-year-old pays $15 monthly for a term policy, it costs $106 for the same policy if you're 65.
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Jeff Root
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Jeff is a well-known speaker and expert in life insurance and financial planning. He has spoken at top insurance conferences around the U.S., including the InsuranceNewsNet Super Conference, the 8% Nation Insurance Wealth Conference, and the Digital Life Insurance Agent Mastermind. He has been featured and quoted in Nerdwallet, Bloomberg, Forbes, U.S. News & Money, USA Today, and other leading...
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UPDATED: Jul 28, 2023
It’s all about you. We want to help you make the right life insurance coverage choices.
Advertiser Disclosure: We strive to help you make confident life insurance decisions. Comparison shopping should be easy. We are not affiliated with any one life insurance company and cannot guarantee quotes from any single company.
Our life insurance industry partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different life insurance companies please enter your ZIP code above to use the free quote tool. The more quotes you compare, the more chances to save.
Editorial Guidelines: We are a free online resource for anyone interested in learning more about life insurance. Our goal is to be an objective, third-party resource for everything life insurance-related. We update our site regularly, and all content is reviewed by life insurance experts.
UPDATED: Jul 28, 2023
It’s all about you. We want to help you make the right life insurance coverage choices.
Advertiser Disclosure: We strive to help you make confident life insurance decisions. Comparison shopping should be easy. We are not affiliated with any one life insurance company and cannot guarantee quotes from any single company.
Our life insurance industry partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different life insurance companies please enter your ZIP code above to use the free quote tool. The more quotes you compare, the more chances to save.
On This Page
- Age and gender are major factors life insurance companies consider when setting rates, since older adults and men have higher mortality rates
- In addition, insurers consider health factors like pre-exisiting medical conditions, lifestyle habits, and family health history when calculating term life insurance rates
- Policyholders will also pay higher term life insurance rates if they have high coverage amounts or long term lengths
Life insurance companies work with actuaries and underwriters to calculate the risk of insuring your life. Those companies consider several factors influencing the rates charged for your term life insurance policy.
Does your job affect your life insurance? Yes, it can indeed have an impact on your life insurance. Certain jobs with higher risk factors, such as those in hazardous industries or extreme sports, may result in higher premiums due to the increased likelihood of accidents or fatalities.
While you can’t control all of the factors affecting your rates, you can make certain positive lifestyle changes to reduce the cost of life insurance. Keep reading to learn more about how term life insurance rates are calculated and how you can lower them.
How Term Life Insurance Rates Are Calculated
When setting term life insurance rates, insurance companies consider several factors to assess your risk to insure. Rates also vary widely depending on the chosen insurance company. So, you should always get several quotes before settling on coverage to find the best term life insurance policy for you.
Common factors that affect how term life insurance rates are calculated include:
Age and Gender
Life insurance rates by age and gender vary considerably. Age is one of the most important predictors of mortality risk, so underwriters consider it when assessing the risk to insure your life. The older a person, the more they’ll pay for term life insurance, since older policyholders are more likely to have health concerns.
As a result, younger people usually get the best term life insurance rates, making it wise to buy a policy while still young. For example, while a 25-year-old male pays $15 monthly on average for a term life insurance policy, a 65-year-old pays $106 a month. Read on to learn more about life insurance for seniors and life insurance for 30-year-olds.
In addition, life insurance companies also consider a policyholder’s gender when setting rates. With women vs. men, term life insurance rates for women tend to be less expensive because the average life expectancy for women is higher than for men.
Health
Health is another important factor that determines your rates. Most life insurance companies require you to undergo a medical exam. However, if you have a medical condition that could make your policy unaffordable or hinder you from obtaining coverage, consider a no-medical-exam life insurance policy, though you’ll pay higher premiums.
Factors like obesity, smoking, family history, high cholesterol, high blood pressure, diabetes, medication, and mental health are all considered when applying for life insurance. Keep reading to learn how to get life insurance with a medical condition.
Coverage Amount and Length
The type of term life insurance you purchase affects how much you pay for your policy. For example, the higher your life insurance coverage amount, the more you’ll pay in premiums since that means a higher potential payout for the insurer.
In addition, policy length also affects your term life insurance rates. The policy length is the amount of time your policy remains in force, and lengths range from 10-30-year terms. The longer your policy term, the more you’ll pay for coverage.
Occupation
Life insurance companies also consider your occupation when calculating rates. If your job exposes you to dangerous health risks, requires extensive travel, or is high-stress, be prepared for higher premium rates. For example, life insurance for firefighters has higher-than-average rates to mitigate the risks associated with the job.
On the other hand, a safer job would attract low-cost life insurance rates. Keep reading to learn more about jobs that could make you pay more for life insurance.
Hobbies
Certain hobbies you enjoy may make you seem like a risk-taker to some life insurance companies. These hobbies include skiing, bungee jumping, rock climbing, scuba diving, car racing, and other extreme sports.
Engaging in one or more of these activities regularly may cause your term life insurance premium to climb. See how you can find affordable life insurance for extreme sports.
Driving Record
How you handle your motor vehicle may give life insurance companies more insight into your personality traits. For example, if you engage in reckless driving, an insurer may believe you’re more likely to be reckless with your health, which can negatively affect your premiums.
All of the abovementioned factors are calculated to assess your risk of premature death. A life insurance company may deny you coverage if your risk is extremely high. Read more about life insurance for high-risk individuals.
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Case Studies: How Term Life Insurance Rates Are Calculated
Case Study 1: John’s Age Impact on Premiums
John, a 25-year-old healthy male, decides to purchase a term life insurance policy. He receives quotes from various insurance companies and discovers that he can obtain a policy with a coverage amount of $500,000 for a monthly premium of $15. This affordable rate is due to his young age and low risk of health concerns.
Case Study 2: Sarah’s Premium Increase as She Ages
Sarah, a 65-year-old female, is interested in purchasing a term life insurance policy with the same coverage amount as John. However, she finds that her age significantly impacts the premium.
For a policy with a coverage amount of $500,000, Sarah would need to pay $106 per month. The higher premium reflects the increased mortality risk associated with older individuals.
Case Study 3: Michael’s Occupation and Premium Adjustments
Michael, a 40-year-old man, works as a firefighter. Due to the hazardous nature of his occupation, he faces higher premium rates compared to individuals with safer jobs.
When he requests quotes for a term life insurance policy, he discovers that his premiums are higher than average to account for the increased risks associated with firefighting.
Case Study 4: Amanda’s Hobbies and Increased Premiums
Amanda, a 30-year-old woman, enjoys engaging in extreme sports such as rock climbing and bungee jumping.
When she applies for term life insurance, she realizes that her premium is higher than average due to the perceived risk associated with her hobbies. Insurance companies consider her participation in high-risk activities when calculating her premium.
Everything You Need to Know About How Term Life Insurance Rates Are Calculated
It’s important to note that just because one life insurance company gives you standard rates doesn’t mean all companies will do the same. For example, another company may grant you preferred rates, saving you money.
While life insurance companies use the same criteria to determine life insurance rates, they may also specialize in some areas to give them a competitive edge. So, it’s helpful to talk to a licensed life insurance professional who knows more about life insurance company guidelines and can help find the best company for you.
Frequently Asked Questions
How are term life insurance rates calculated?
Term life insurance rates are calculated based on various factors such as age, driving record, health, occupation, coverage amount, and hobbies. These factors help insurers assess the risk of insuring your life. For example, younger individuals generally pay lower rates compared to older individuals. Additionally, certain health conditions or high-risk occupations may result in higher premiums.
What factors affect term life insurance rates?
Several factors can influence term life insurance rates. These include age and gender, health condition, coverage amount and length, occupation, hobbies, and driving record. Insurance companies take these factors into account to assess the risk associated with insuring an individual’s life. It’s important to note that different insurance companies may have varying rates, so it’s recommended to compare quotes from multiple providers.
How does age and gender impact term life insurance rates?
Age and gender play a significant role in determining term life insurance rates. Generally, younger individuals receive lower rates compared to older individuals, as younger policyholders are considered less likely to have health concerns. Moreover, women tend to have lower rates than men since their average life expectancy is higher. It’s advisable to purchase a term life insurance policy at a younger age to secure more affordable premiums.
Can my occupation affect term life insurance rates?
Yes, your occupation can affect term life insurance rates. If your job involves high-risk factors such as dangerous health risks, extensive travel, or high-stress environments, insurance companies may charge higher premiums. For example, occupations like firefighters or extreme sports professionals may attract higher-than-average rates due to the associated risks. Conversely, safer occupations may result in lower-cost life insurance rates.
Do hobbies impact term life insurance rates?
Yes, certain hobbies can impact term life insurance rates. Engaging in activities considered high-risk or extreme, such as skiing, bungee jumping, rock climbing, or car racing, may lead to higher premiums. Insurance companies perceive these hobbies as risk factors that increase the likelihood of accidents or injuries. If you have such hobbies, it’s important to discuss them with your insurance provider to determine how they may affect your rates.
Your life insurance quotes are always free.
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Jeff Root
Licensed Life Insurance Agent
Jeff is a well-known speaker and expert in life insurance and financial planning. He has spoken at top insurance conferences around the U.S., including the InsuranceNewsNet Super Conference, the 8% Nation Insurance Wealth Conference, and the Digital Life Insurance Agent Mastermind. He has been featured and quoted in Nerdwallet, Bloomberg, Forbes, U.S. News & Money, USA Today, and other leading...
Licensed Life Insurance Agent
Editorial Guidelines: We are a free online resource for anyone interested in learning more about life insurance. Our goal is to be an objective, third-party resource for everything life insurance-related. We update our site regularly, and all content is reviewed by life insurance experts.
