Learn the Basics: What Factors Affect Life Insurance Premiums?

Posted by Matt Simon on Apr 20, 2018

Gaining a Better Understanding of How Life Insurance Policies Work Will Help You Obtain the Best Plan that Meets Your Needs

Like any insurance policy, there are many factors unique to each individual that affect the cost of their life insurance. Knowing what factors affect life insurance premiums can help you find the best policy for your needs, and allow you to identify when the best time to get coverage will be.

When people think life insurance, they tend to believe that they won’t need it until they’re older. If you’re young and healthy, that doesn’t mean you should think you’re exempt from life insurance. In fact, it’s the best time for you to get a life insurance policy because healthy individuals have more affordable premiums. This is just one of the factors that affect life insurance premiums. Understanding what goes into your cost will help you understand what you’re paying for and why, and it can also help you pay less.

To start, the point in life that you’re at has a large impact on the cost of your insurance. If you have a great deal of financial responsibility in debt, mortgages, bills, or other large items, your premium is going to be more because you’re going to need more coverage.

The older you are, the more coverage you’re going to need to ensure that your loved ones are covered in the event of your death. Too little coverage could mean they’re still saddled with a financial burden after your death, which only makes the grieving process more difficult.

Significant life events can also impact your life insurance premiums as well. From marriage to your first or second home, these things will all play a part. We’ll take a deeper dive into what factors affect life insurance premiums to help you learn everything you need to know about your future policy.

Which Factors in Your Life are Going to Have an Impact on Your Future Life Insurance Premiums?

When you get your first job, part of your benefits package might include a life insurance policy. If this happens, don't make the mistake of believing this covers you. You need to understand that if you leave this job, voluntarily or other, your life insurance goes away. We've seen too many tragic stories where an employee spent 30 years working for the same company, believing that entire time they had coverage provided by their employer. And they did. Problem was, the employee didn't pass away while working, it was 16 years after he retired. By the time he retired, the cost to obtain a life insurance policy was too expensive due to his age and health conditions. Bottom line, don't ever rely on life insurance provided by your employer as the sole benefit for your family. Anything provided by your employer should be viewed as a bonus, not the sole financial protection for your loved ones.

Marriage is one of the more significant factors that affect life insurance premiums. When you get married, you share everything, including financial responsibility. If you pass away suddenly, your partner is then responsible for paying off that debt. When you get a life insurance policy, making your partner your beneficiary will make sure that this doesn’t happen because they’ll have a payout to cover any of your financial responsibility that was left over.

If you were to get divorced, you should also make sure you change your beneficiary. This will make sure that the right person is receiving your insurance payout.

Having children is another factor that can raise your premiums, and if you assist them with paying for higher education, those loans can increase it as well. Just like marriage, having children expands your need for coverage, because there’s more than one person that will need financial assistance. Especially if you’re the head of the household.

As you move through life, a lot of factors are going to increase your insurance premiums, including your health. It’s not uncommon to go through a physical exam ahead of receiving your insurance policy to determine what health issues, if any, will affect your cost. Unfortunately, if you have significant health problems, this is going to raise your rates. This is why it’s so important to get life insurance when you’re young and healthy, so you don’t have the burden of a higher cost if you were to get sick.

On the other hand, some factors can bring your life insurance premiums down. As we stated before, good health means less cost. Other things that bring your price down are the size of your debt and the amount of coverage you need. If you don’t need to purchase a large amount of life insurance, this will lead to a lower premium. 

Overall, many factors affect your life insurance premiums, but if you’re aware of which ones are active in your life, you’ll be able to have a better conversation with your advisor to get the best policy for your needs.

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Category: Life Insurance (1)