What Is a Life Insurance Premium?

A life insurance premium is the regular payment you must make in order to maintain life insurance coverage. Insurance companies will consider factors like your age, sex, medical history, type of coverage and more when calculating the cost of your life insurance.

Read below for more information on the types of life insurance premiums and how you can find the most affordable life insurance policy available.

Key Takeaways Your life insurance premium is the payment you must continually make to keep your life insurance policy active. As long as you continue paying your premium, your life insurance company will pay a predetermined death benefit to your beneficiaries if you die during the coverage period. Life insurance premiums are determined by your age, sex, medical history, lifestyle and occupation, along with the details of your policy like the coverage amount, coverage type and underwriting method. Term life insurance is generally cheaper since the coverage period lasts for a limited amount of time, while whole life insurance tends to be more expensive since it remains active for your entire life. You can get lower life insurance rates by buying a policy earlier in your life, practicing healthier habits, bundling policies and lowering the death benefit amount.

How Do Life Insurance Premiums Work?

Like a home or car insurance premium, your life insurance premium is the amount of money you have to pay to purchase and maintain life insurance. You will generally have to make premium payments monthly, semiannually or annually, depending on your insurance company and the details of your policy.

Continually paying your premium ensures that your insurance provider will pay your beneficiaries an agreed-upon amount of money known as a death benefit if you die during the coverage period.

However, if you fail to pay your premium, you run the risk of experiencing a lapse in coverage and having your life insurance policy canceled.

Keep in mind that insurance carriers typically provide a one-month grace period for missed payments before they will cancel your life insurance policy. Even if your life insurance does lapse, you may be able to reinstate it by paying off your past-due premiums with interest.^[1]

How Is a Life Insurance Premium Calculated?

Insurance companies generally evaluate the price of your life insurance by determining how likely it is that you will die and require a death benefit payout during your coverage period. Some of the factors that may be used to calculate your life insurance premium include the following:

• Age: The older you are when you take out a life insurance policy, the more expensive it will generally be since the odds of you dying during your life insurance coverage period will be higher. Young people also pay lower premiums because they are expected to live longer and make more payments than their older counterparts.
• Sex: Men often have higher life insurance rates than women because women live longer on average.^[2]
• Medical history: Someone who has already suffered from heart disease will likely have to pay more for life insurance than a person with no prior medical issues. You may also pay more if you have not had a serious medical condition but your family has a history of experiencing chronic illness.
• Lifestyle: If you regularly smoke or have a dangerous hobby like skydiving, you can expect to pay more for life insurance since your lifestyle increases the risk that you will die early.
• Occupation: You may have to pay more for life insurance if you have a high risk of dying due to an on-the-job accident. For example, a construction worker will likely have a higher premium than someone with a desk job.
• Coverage amount: When you purchase a life insurance policy, you get to choose how much money your insurance company will pay your beneficiaries after you die. Naturally, you will have to pay a higher premium for $1 million in coverage than you would for a $250,000 death benefit.
• Term length: If your life insurance comes with a shorter coverage period, your premiums will likely be cheaper and you will have to make fewer premium payments than you would for a longer term.
• Riders: Your life insurance will cost more if you purchase any riders that add extra coverage to your policy. For example, some insurers offer an accidental death rider that increases the death benefit if you die suddenly and unexpectedly.

Underwriting Methods

The cost of your life insurance also depends on your insurer’s underwriting method, which is the process by which your insurance company assesses the risk of insuring you. Below is an overview of the three main underwriting methods and how they could impact your life insurance rates.

Method	Description	Pros	Cons
Full Underwriting	Uses a detailed medical examination and assesses your habits and family medical history to evaluate your risk	Can lead to lower rates if you have a healthy lifestyle and no history of serious health issues	Can lead to higher rates if you have an unhealthy lifestyle or a history of serious health issues
Simplified Issue	Uses a questionnaire about your health, habits and medical history to evaluate your risk	Allows for a quicker application and approval process and avoids the risk of a medical examination uncovering an underlying health issue that could raise your rates	Generally results in higher rates than full underwriting since it provides your insurance company with less detailed information
Guaranteed Issue	Provides life insurance coverage at a set rate without evaluating your risk	May be the cheapest option if you have serious health issues	Will likely cost more than a fully underwritten policy if you are healthy and typically provides smaller death benefits

Types of Life Insurance Policies

The type of life insurance coverage that you select will also influence the cost of your premium. Policyholders typically choose between two categories: term life insurance or whole life insurance, a type of permanent life insurance.

Term Life Insurance

Term life insurance is a type of life insurance policy that only lasts for a set period of time, usually between one and 30 years.^[3] Once you reach the end of your term, your coverage will expire and your beneficiaries will no longer be eligible for a payout after your death. It is generally cheaper than whole life insurance since there is no guarantee that your insurance company will have to pay a death benefit before the end of your term.

If you purchase level term life insurance, the potential death benefit will remain the same throughout the duration of your term. Conversely, if you purchase decreasing term life insurance, the potential payout will get lower over the course of the term.

A term life insurance policy might be beneficial if you are a younger person who wants to make sure that your family would be taken care of and could pay off any outstanding debts if you were to die suddenly.

For example, if you make $50,000 a year, you might want to purchase a 10-year term life insurance policy with $500,000 in coverage to ensure that your family would effectively receive your income for the next 10 years even if you were to die before then.

Whole Life Insurance

As its name suggests, whole life insurance should provide coverage for your entire life as long as you continue to pay your premiums. While insurance companies technically can’t calculate life insurance premiums for anyone age 121 or older, you can reasonably expect that this kind of policy will cover your whole life since no one in the United States has ever lived that long.^[4][5]

The most common type of permanent life insurance, whole life insurance can be especially beneficial for older people who want to help their relatives cover the costs of funeral expenses after they die. Whole life insurance is more expensive than term life insurance since it is essentially guaranteed that the insurance company will have to pay the policy’s death benefits at some point.

Whole life insurance policies are also more expensive because they accrue cash value over time. This may be automatically used to cover a missed premium payment to ensure that your coverage doesn’t lapse. Alternatively, you may eventually be able to borrow against your policy’s cash value in the form of a loan or cash out completely by forfeiting your beneficiaries’ right to a death benefit.

Universal Life Insurance

Another type of permanent life insurance known as universal life insurance allows you to raise or lower your premiums and death benefits over time. Here are the main types of universal life insurance and how they accumulate cash value:

• Guaranteed universal life insurance: This type of policy accrues cash value at a set rate, meaning it experiences guaranteed growth but doesn’t have as much growth potential as other kinds of universal life insurance.
• Indexed universal life insurance: The cash value for this type of policy earns interest based on the performance of a stock market index like the S&P 500 or Russell 2000. This type of policy may have a cap on the highest percentage of interest you can accrue and may not produce any interest if the market index performs poorly. However, indexed universal life insurance often comes with an interest rate floor to ensure that you don’t lose cash value.
• Variable universal life insurance: A variable universal life insurance policy can grow cash value based on a number of investment options. While it has the potential for high growth, it is also possible to lose cash value with a variable universal life insurance policy.

Life Insurance Premium Examples

Life insurance premiums can vary considerably based on a person’s circumstances. For example, a 35-year-old North Carolinian woman in excellent health might pay around $16 a month for a 10-year term life insurance policy that provides $250,000 in coverage.^[6]

Conversely, a 65-year-old Californian man in average health might have to pay more than $4,600 per month if he wants to buy a whole life insurance policy that provides $1 million in coverage.^[6] As with any other type of insurance coverage, you should shop around using an insurance marketplace like SmartFinancial to find the company that will provide the best rate for you.

See below for more examples of how average term life insurance rates can differ depending on your age and sex.

How To Reduce Your Life Insurance Premium

One of the simplest ways to lower your life insurance policy premium is to buy life insurance sooner rather than later. While many policies offer rates that don’t increase over time, those initial rates will be much lower for a younger buyer than an older buyer.

In addition, healthier people get to pay less for life insurance. As a result, you could reduce your premium by improving your diet and establishing an exercise routine before buying life insurance. Additionally, if your life insurance provider also sells home or auto insurance, you could get discounted rates by bundling your policies together.

Finally, you could lower your premium by reducing your coverage or changing the type of life insurance you purchase. Buying term life insurance with lower death benefits will always be cheaper than whole life insurance with higher death benefits, so it’s important to evaluate how much coverage you actually need and what policy would provide the best value given your budget.