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No one likes to think about the day when they're no longer around. But it's important to plan for that possibility and be sure your loved ones are left with a financial lifeline.

Buying life insurance ensures that if you die, your family can afford the expenses you leave behind, including funeral costs and mortgage payments. It can also help pay for childcare and future college education.

"The most important benefit of life insurance is the financial protection and peace of mind it provides families," says Brian Bayerle, senior actuary at the American Council of Life Insurers.

Aaron Ball, senior vice president and head of insurance solutions, service, and marketing at New York Life, says life insurance is one way to reduce risk.

"As people prepare for the future, they should consider opportunities to take risk off the table," says Ball. "Life insurance is one way to do that."

Before you settle on a life insurance policy, take the time to learn how premiums are set, average cost of life insurance and what you can do to get the most affordable policy possible.

  • Age and health are usually the most important factors when insurers set life insurance rates.
  • The type and length of the policy also influence how much you’ll pay for life insurance.
  • Most life insurance policies require a medical exam to gauge an applicant’s risk. 
  • One factor that insurers don’t use when setting life insurance rates is where you live.
  • Buying life insurance when you’re younger and shopping around for a policy are two ways to save on life insurance.

How life insurance rates are determined

Every life insurance company uses its own metrics to determine rates. However, age and health are generally the most important factors that insurers consider, according to Fred Hoffman, co-founder of Seniors Life Insurance Finder.

"Younger people tend to have a longer expected lifespan, which makes them less risky for an insurance company to take on than older people," he said. For that reason, younger people typically see lower rates on their policies than seniors.

Another important factor is your health condition.

"Most carriers conduct a medical examination at the start of the underwriting process, which includes recording height and weight, blood pressure, cholesterol levels, and other important data," Hoffman explained.

This data is then used to determine how much insurance you qualify for and your rates.

Factors that influence cost of life insurance

Though age and health are important, many other factors go into setting health insurance rates, including:

  • Type of policy
  • Length of policy

For example, the rates vary between 10-, 20- and 30-year terms. Shorter term life insurance policies have lower premiums than longer term policies.For instance, a 10-year policy will be cheaper than a 20-year term life policy.

However, permanent life insurance coverage like whole life typically costs more than term life.

"Whole life insurance -- policies that never expire -- will be the most expensive," says Zach Keefer of Voyage Retirement Solutions.

In fact, whole life insurance can cost five to 15 times more than a term life insurance policy with the same death benefit. But it can be well worth it, depending on your family situation and financial goals.

Other types of permanent life insurance like universal life are also more costly than term life because your loved ones are guaranteed a death benefit when you die and those policies have cash value.

Other personal factors that life insurance companies gauge that can increase your rates are:

  • Gender
  • Tobacco use
  • Risky hobbies
  • Health history and medications

Factors that don't influence life insurance rates

Many personal factors go into determining your life insurance rate. Even so, some things don't impact rates at all, including:

  • Where you live: Your zip code can affect certain costs, like property taxes, rent and car insurance, but insurance companies don’t use your location when basing life insurance costs.
  • Credit score: Though your credit score can impact auto insurance rates, it rarely has any bearing on your life insurance rates. That said, some insurance companies may look into certain credit attributes, such as whether you've filed for bankruptcy.
  • Income: Sure, you use your income to gauge how much life insurance you need. But when it comes to the premium, your income isn’t a factor in the cost.

Average life insurance rates for 2021

Below are the average life insurance costs per month among the four basic types of policies, according to data from S&P Global:

Average term life insurance rates

Those are the overall averages, but factors increase or decrease your rates significantly. Here’s a look at the average rates for term life policies to give you an idea of how age, length of policy and health status influence the cost of life insurance.

Average life insurance cost by age

Here's the annual life insurance cost by age for a nonsmoking woman classified as Regular health status for a $500,000 20-year level term life policy.

AgeAverage annual rateLowest rateHighest rate

Source: CompuLife, September 2021

Average life insurance cost by gender

Here's the annual life insurance cost for a nonsmoking man and woman classified as Regular health status for a $500,000 level term life policy.

Average annual rateLowest rateHighest rate
25-year-old woman$415$325$920
25-year-old man$510$410$1,065
30-year-old woman$442$345$960
30-year-old man$532$421$1,100
40-year-old woman$687$514$1,325
40-year-old man$840$659$1,695
50-year-old woman$1,486$1,175$2,885
50-year-old man$1,953$1,549$4,242
60-year-old woman$3,724$3,067$8,580
60-year-old man$5,311$4,327$12,515

Source: CompuLife, September 2021

Average life insurance cost by policy type

Here's the annual life insurance cost by age for a nonsmoking 40-year-old woman classified as Regular health status for a $500,000 20-year term life policy.

Average annual rateLowest rateHighest rate
Level term$687$514$1,325
To age 65 level guaranteed$894$800$1,125
To age 70 level guaranteed$1,083$865$1,425
To age 75 level guaranteed$2,195$1,065$3,210
Return of premium$2,670$2,020$3,575

Source: CompuLife, September 2021

Average life insurance cost by health conditions

Here's the annual life insurance cost by age for a nonsmoking 40-year-old woman classified for a $500,000 20-year level term life policy.

Health statusAverage annual rateLowest rateHighest rate
Preferred Plus$519$277$1,325
Regular Plus$638$460$1,325

Source: CompuLife, September 2021

Average life insurance cost by term length

Here's the annual life insurance cost by age for a nonsmoking 40-year-old woman classified as Regular health status for a $500,000 level term life policy.

Average annual rateLowest rateHighest rate
10-year term$480$354$900
20-year term$687$514$1,325
30-year term$1,049$862$1,851

Source: CompuLife, September 2021

Average life insurance cost by amount of coverage

Here's the annual life insurance cost by age for a nonsmoking 40-year-old woman classified as Regular health status for a 20-year level term life policy.

Average annual rateLowest rateHighest rate
$1 million$1,294$937$3,426
$5 million$5,968$4,350$12,360

Source: CompuLife, September 2021

Best time to buy life insurance

If you're wondering when you should buy life insurance, the answer is as soon as possible. Age is the number one factor in determining life insurance rates by a long shot, Keefer says.

"The older you are, the more you'll pay across the board."

Plus, if you have children, it's vital to get coverage when they’re younger and more financially dependent on you.

That said, not everyone in their 20s is savvy enough to know they need to look into life insurance. Even if you're middle-aged or a senior, you can still secure affordable life insurance. The key is to get several quotes from insurers and compare the costs for different types of policies. And if you're much older without young dependents, you may want to look into term life insurance or final expense coverage only to save on costs.

"It's important to seek the help of a trusted financial professional to ensure you're adequately covered and can make the most of your policy," Ball says.

How to lower life insurance rates

Regardless of when you buy life insurance, it's a good idea to save money when you can. Though you can't control factors, such as your age or gender, you can take steps to help lower your rates. Here are a few ideas.

Buy early

If you've decided to purchase a life insurance policy, don't wait to try to get healthier or kick a smoking habit.

"The cost of the policy increases with each passing year, so get a policy as soon as possible after making the decision," Hoffman says.

Choose the right type of policy

Picking a policy can be confusing, and some people end up with the wrong type of insurance that costs more than necessary. For example, Hoffman said that this is common with his older clients, especially those over the age of 80.

"Before you buy any policy, make sure you understand what you need and which type of policy can fulfill your needs," he says.

Improve your health

Your health also makes a big difference in the cost of your policy. If your weight is considered unhealthy, try reining in your diet and add a bit of exercise to your routine.

And if you're still smoking, consider quitting.

How much life insurance do I need?

The death benefit from life insurance can be used for pretty much anything your beneficiaries want. Most people rely on life insurance proceeds to cover things like funeral expenses, medical bills, mortgage and debt payments, child care, and other major expenses they may not be able to afford if the primary policyholder dies.

So how much insurance coverage do you actually need? For most people, Hoffman suggests using a common guideline for determining the amount of insurance you need: Get a policy that is 10-12 times your annual income and lasts for at least 15 years.

Of course, that's just a guideline. If you have a particularly expensive mortgage or are putting your kids through an Ivy League, for instance, you may need even more coverage.

However, Hoffman adds that seniors may not need that much insurance. The same is true if you have little debt or no dependents. In that case, calculate how much your family would need to cover funeral costs and medical expenses, plus a little extra.

"A life insurance agent or other financial professionals can help people determine what level of protection is right for them and their families based on their financial responsibilities, sources of income and savings," Bayerle says.

Frequently Asked Questions

Is it worth it to buy life insurance?

As long as you choose a policy that fits your needs and budget, life insurance is generally well worth the cost, says Keefer.

"Unexpected things happen to families all the time and you don't want to put your family in a financial hole if the worst-case scenario happens," he says.

Plus, Keefer adds there are many new types of life insurance policies on the market, many come with living benefits, meaning you don't have to die to use the policy. However, it's a good idea to talk with a financial professional to figure out what type of life insurance is best for you.

How much should you spend on life insurance?

There are a few different formulas for determining how much life insurance you need, which translates to how much you ultimately spend on your premium.

A common rule of thumb is that you should spend 6% of your gross income, plus 1% for each dependent. Ultimately, however, the right amount to spend is whatever you can comfortably afford.

Many policies terminate if you miss the payments, so it's important not to overextend yourself and put your finances in a precarious situation.

Do you pay taxes on life insurance?

In general, the death benefit proceeds that beneficiaries receive after the policyholder dies aren’t considered income and don’t need to be reported on tax returns. However, if you have an insurance policy with a cash value that earns interest, you must report that interest income and pay taxes on it.

How do you buy life insurance?

When you're ready to buy a life insurance policy, there are a few ways to go about it. First, gather a few quotes to see what rates you qualify for (enter your zip code here to get started). You can sign up for a policy directly online. Or you can work with an insurance broker or agent.

Keep in mind that if you go through a third party, though, they will likely collect a commission and may not give you the most unbiased recommendation.

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