When people come to us to consult about buying life insurance, our experts usually recommend buying young. The reason is not that we’re trying to sell you something — Sproutt insurance advisors have no affiliation with any insurance company. Rather, the reason we advise buying life insurance at a young age has to do with the cost of life insurance and the way monthly premiums are calculated. Read on to find out more.
How Life Insurance Premiums Are Calculated
When you apply for life insurance, you have to fill out a detailed questionnaire about your health and lifestyle. You may also have to undergo a medical exam. The information from your application and exam gets forwarded to the insurer’s team of underwriters, which pores over each detail and determines the statistical probability of you dying at a young age.
Why is there a whole team of underwriters dedicated to calculating people’s mortality rates? Quite morbid, no? While it may not be the most pleasant subject, this type of statistical analysis (based on life expectancy) is the most accurate way for life insurance companies to assess their risk.
According to data published by the Boston University School of Medicine, the healthier someone is, the less likely they are to die early. The more health complications someone has, the higher their risk of dying sooner. For this reason, the healthier you are, the lower your life insurance rates will be. The more complications you have, the higher your premiums will be.
High premiums cover the chance that you may die early from health complications.
Term Life Insurance Rates vs. Whole Life Insurance Rates
Term life insurance is a type of policy that lasts for a period of time and is bought in blocks of years, like 10, 20, and 30, etc. When it comes to this type of life insurance, the longer someone lives, the less likely the insurer will need to pay out the death benefit.
For example, if a 30-year-old buys a 30-year life insurance policy, it will expire at age 60. If that person doesn’t die within those 30 years, the life insurance company doesn’t need to pay out anything. If the person does die within that 30-year term, the company will need to pay out the death benefit.
In most cases, the death benefit from term policies is never claimed, which is why term monthly rates are more affordable than whole life insurance.
Unlike term, whole life insurance has no expiration date and lasts the policyholder’s entire lifetime. The insurance company will always need to pay out. This is why monthly premiums for whole life insurance are higher than those of term. This is true at any age and for any amount of coverage.
Be sure to check our guide on understanding the differences between term and whole life insurance.
How Does Age Affect the Cost of Life Insurance?
So we understand why someone in excellent health can get better rates than someone in poor health, but what does health have to do with buying life insurance at a young age? It’s simple. Age and health are innately intertwined. According to the NCBI (National Center for Biotechnology Information), the younger you are, the fewer health complications you have.
This is true for every age bracket. People in their 40s are healthier than people in their 50s, people in their 50s are healthier than people in their 60s, and so on. Therefore, Sproutt insurance advisors recommend buying life insurance in your 20s and 30s because this will enable you to lock in lower insurance rates and can save you money in the long run.
Average Term Life Insurance Rates by Age
Below is a chart of average term life insurance rates by age for men and women in relatively good health. In this case, we have looked at a $500,000, 20-year term policy for people located in New York (prices can vary by state).
| Age | Male non-smoker price per month | Male smoker price per month | Female non-smoker price per month | Female smoker price per month |
|---|---|---|---|---|
| 60 | $244 | $861 | $173 | $592 |
| 50 | $91 | $326 | $69 | $232 |
| 40 | $40 | $137 | $32 | $107 |
| 30 | $27 | $77 | $22 | $63 |
| 20 | $26 | $68 | $20 | $55 |
Next, compare the rates for smokers and non-smokers. If you thought buying life insurance at age 60 was expensive, try being 60 and a smoker. The rates are through the roof. At all ages, the rates for smokers are double or even triple the rates for non-smokers. The reason for this is because the mortality rate for both male and female smokers is three times higher than people who never smoked, according to the CDC (Centers for Disease Control and Prevention).There are a few things to note here. First, look at the price jump between the ages of 40 and 50. The difference is more than $50 a month for men and more than $30 a month for women — that’s a lot. The difference between the age of 50 and 60, however, is substantial. A male 60-year old non-smoker applying for the same policy as a 50-year old non-smoker can expect to pay more than $150 more in monthly premiums. Female applicants in the same categories can expect to pay more than $100 more a month. The figures speak for themselves.
Note that for women, the average cost of monthly premiums are significantly less than those of men across the board. This is because women statistically live longer than men.
Whole Life Insurance Quotes
Whole life insurance is more expensive than term at every age. This is due to the nature of this type of insurance: it lasts a lifetime and also has a cash value component. How much more expensive is it than term? Check out the chart below.
Here is a chart of whole life insurance rates by age. The quotes are for New York-based, relatively healthy males and females with steady jobs, no credit issues, and no DUI (driving under the influence) convictions.
Whole Life Insurance Rates by Age Chart for $1 Million in Coverage
| Age | Male non-smoker price per month | Male smoker price per month | Female non-smoker price per month | Female smoker price per month |
|---|---|---|---|---|
| 60 | $1,395 | $3,129 | $1,171 | $2531 |
| 50 | $845 | $1,868 | $729 | $1528 |
| 40 | $705 | $1,460 | $602 | $1209 |
| 30 | $491 | $938 | $435 | $807 |
| 20 | $334 | $632 | $311 | $480 |
For men and women, the pricing pattern is similar to that of term, though on a higher scale. Women pay less life insurance than men at all ages, while smokers can expect to pay double or more at all ages. The price difference between ages 50 and 60 is more significant than the price differences between other age brackets.
Other Factors That Affect Life Insurance Premiums
Age is one of the main factors that affect life insurance premiums, but it’s certainly not the only factor. As displayed by the charts above, gender and smoking status play a significant role in determining a person’s life insurance premiums. Other factors include:
- Length of term – The longer your term, the higher your premiums will be
- Amount of coverage – The higher your coverage, the higher your premiums will be
- Job and hobbies – People who have dangerous jobs or hobbies get higher premiums
- Health – Health complications, medications you’re taking, health history, family health history, and the required life insurance medical exam all play a role in determining your monthly premiums
FAQS
Do you still have questions about the average life insurance rates by age? Here are some frequently asked questions and answers.
At what age do life insurance premiums go up?
With term life insurance, monthly premiums increase between 8% and 10% on average every year. That means that someone who buys life insurance at age 40 can expect to pay about 8% more than someone who buys at age 39. Likewise, someone who buys at age 55 can expect to pay about 10% more than someone who buys at age 54. Every year counts when it comes to cost.
The good news is, if you buy term life insurance at a young age, those premiums are locked in for the duration of your policy. So if you buy a 20-year policy at age 40, you will pay the same amount in monthly premiums until you reach age 60. The same is true for most whole life insurance policies.
What is the age limit for buying a term life insurance policy?
The exact age limit depends on the insurer, but most insurers offer term policies until 75 or 80.
What happens if my term life insurance policy expires?
If you outlive your term life insurance policy (which is the hope!), you will have several options, depending on your policy. Many policies offer the option of renewal. Bear in mind that if you renew, you will not be given your original rates. Instead, you will be given rates that reflect your current older age. If you do not want to renew, you can buy a new policy, but that still leaves the issue of getting higher rates than previously. Some insurers offer the option to convert the expiring term policy to a permanent policy without the need to qualify. In this case, the rates are based on your age at the time of conversion.
Due to the fact that life insurance costs more as you get older, it’s crucial to make sure that you buy enough coverage initially. For example, if you’re on the fence about whether to get a 20-year or 25-year term policy, it can be worthwhile to buy the longer policy. Yes, the term does impact the amount you pay in monthly premiums, but you will likely pay more if you end up having to renew or buy a new policy 20 years down the line. If you’re unsure what the right move is for you, you can talk to a Sproutt Licensed Sales Advisor.
Do I need life insurance at age 25?
This specific question is part of the broader question: at what age should you get life insurance? Unfortunately, there’s no definitive answer, and the reason for this is because life insurance is highly personal.
People get life insurance for different reasons:
- To cover their mortgage and/or other debt
- To cover their children’s college tuition, weddings, etc.
- To protect their spouse, in case they die early
- To protect their business/business partner
- To provide a monetary cushion for their loved ones
Your reason for buying life insurance will influence your decision of when to buy it. If you are 25-years-old and have college debt, buying life insurance is a good idea. If you are 25 and don’t have any debt, there may not be a reason to buy life insurance. Similarly, if you are 25 and married with a child, you will want life insurance! If you’re 25 and don’t have any family obligations, life insurance may not be necessary.
How do I know how much term life insurance to get at each age?
This is another highly personal question, but we can give you some pointers for helping you. With term life insurance, there are two things to determine:
- Amount of coverage
- Length of term
To determine the amount of coverage you need, we recommend using the DIME method. DIME is an acronym for Debt, Income, Mortgage, and Expenses. These are the numbers you need to crunch to calculate how much coverage you need. Getting the amount of coverage right is essential— if you get too little, your loved ones won’t have enough. If you get too much, you’ll end up paying higher monthly premiums unnecessarily.
Determining the length of your term depends on your goals, not necessarily your age. In the example about a 25-year-old, you see it is not the age that is most important, but the reason for buying life insurance. A 25-year-old with a young child will likely want to get at least a 20-year term policy so they can cover the child’s college tuition. A 25-year-old who does not have a child, but has college debt, will likely need a shorter policy, until the debt is paid off.
The same is true at any age. A person at age 50 who has a mortgage and teenage kids will need a policy that will last until their mortgage is paid off and possibly until their children get married/go to college. Someone who is 50 years old with a spouse and no kids might only need a policy that lasts until retirement.
The bottom line is, the length of your term should not depend on your age, but on the purpose of your life insurance policy.
