How much does life insurance cost?

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Having adequate life insurance provides financial support for your loved ones in the event of your death. Life insurance costs depend on several factors, like your age and health, as well as how much coverage you need. (iStock)

Life insurance is a financial contract between a life insurance company and policy owner. It protects your loved ones financially when you die by paying them a set amount of money. With a life insurance policy, you pay monthly premiums in exchange for a guaranteed sum of money paid out to the policy's beneficiaries after your death.

You can choose either whole or term life insurance. Whole life insurance provides lifetime coverage for beneficiaries, while term life insurance provides coverage for a set period. Insurance providers offer life insurance for varying term lengths and coverage amounts.

If you’re considering getting life insurance for the first time, or you already have it and are wondering if you have enough, this guide will help you figure out how to proceed.

How much is life insurance?

How much life insurance costs varies based on several key factors, such as your age, gender, health and policy type.

Let's look at a few examples to see the differences in insurance costs based on age.

Here are the average monthly premium costs for a 20-year term policy worth $500,000 for a Georgia male in good health who doesn't smoke, according to Policygenius, an online insurance marketplace partnered with Credible:

23-year-old — $24
33-year-old — $25
43-year-old — $45
53-year-old — $107

The costs are slightly lower for females, since women have a longer life expectancy.

23-year-old — $19
33-year-old — $21
43-year-old — $37
53-year-old — $81

As you can see, costs jump considerably as you get older.

Whole life policies are typically more expensive than term life policies because they’re designed to last your entire life. Here are the average monthly premium costs for a whole life policy worth $500,000, according to Policygenius:

20-year-old male — $303
30-year-old male — $421
40-year-old male — $652
50-year-old male — $1,057
20-year-old female — $249
30-year-old female — $374
40-year-old female — $523
50-year-old female — $837

You can compare quotes from multiple insurance providers through Policygenius, an online marketplace partnered with Credible.

Why is whole life insurance more expensive than a term policy?

In addition to lasting longer, whole life insurance also has a cash value component. This component functions like an investment account, where your money grows tax-deferred over the life of your policy. This money can be used to take out a loan or it can be withdrawn (up to a certain point) if you need funds. Your monthly payments go toward both the death benefit and this cash value, so rates are higher.

There are also management fees, since fund managers oversee this cash value component for you, and these get incorporated into your premiums. These fees add up, especially over the life of the loan.

How are life insurance rates calculated?

Insurers take several data points into account when calculating insurance costs to assess how much of a risk you are as a policyholder. Some of the factors that insurance companies look at when they set insurance premiums include:

Type of life insurance — As previously mentioned, whole life typically costs more than a term policy. Premium costs can also vary based on the term length.
Age — The older you are when you buy a policy, the more it will cost. Life insurance rates typically increase by 4.5% to 9% every year.
Gender — Because men have a shorter life expectancy than women, they’re considered a higher risk and typically have higher premiums than women.
Health — A policy owner's health is one of the primary factors in determining costs. Insurance companies often require applicants to get a medical exam or fill out a health questionnaire before being approved for a policy.
Lifestyle — Insurance companies will also ask questions related to high-risk activities, such as smoking, before setting premiums.
Job — Your occupation also plays a role in insurance costs. Individuals working in more dangerous professions tend to have higher insurance premiums.

Since your health is such a big factor in your life insurance rate, insurance companies often categorize policy owners into different classifications based on their health conditions. These are some of the common insurance classifications:

Super Preferred — Some insurers refer to this as Preferred Elite, Preferred Select or Preferred Plus. This is the highest classification and is reserved for individuals in excellent health who have the ideal height-to-weight ratio and a clean family medical history.
Preferred — Preferred status typically describes individuals in very good health with only minor health concerns.
Standard Plus — This classification is for those in good health and with a good family medical history but who may not have the ideal height-to-weight ratio.
Standard — Individuals classified as Standard don't have the ideal height-to-weight ratio and have a more complicated family medical history.

Individuals who achieve Super Preferred status usually qualify for the lowest possible insurance premiums. Any health issues or family health history issues would drop you to a lower classification and subsequently lead to higher insurance costs.

Some insurers have another classification for individuals who fall below Standard requirements, referred to as Substandard or table ratings. It's called that because your premiums are then factored based on a table-rating system. Substandard insurance rates typically take the Standard rate and add on a specific percentage based on where you fall on the table. Standard and Substandard classifications generally come with the highest insurance premiums.

Factors that don’t affect life insurance rates

It may seem like every area of your life factors into the cost of life insurance, but some factors won't affect how much you pay:

Number of beneficiaries — Having multiple beneficiaries has no bearing on costs, only who receives benefits if you die.
Number of life insurance policies — People can take out multiple life insurance policies for various reasons. Having more than one policy won't affect your rates, although it may cost more overall to have multiple policies.
Your location — Unlike other types of insurance, the city and state you reside in don't factor into the cost of premiums.

You can get free quotes from top life insurance companies through Policygenius, a Credible partner.

How much life insurance do I need?

The amount of life insurance you need varies from person to person based on several factors, including:

Income — One of the primary uses of life insurance is to replace income lost when you die. You should choose an insurance policy that's big enough to replace your income.
Debt — Beneficiaries can use life insurance to pay off outstanding debts. If you have any large debts, you may want to factor them in when choosing a policy amount.
Family — Do you have a spouse or children? If so, consider how much financial support they may need for future expenses.

Experts typically recommend having life insurance coverage that's 10 to 15 times your annual income, but again, this differs on a case-by-case basis. In some cases, you can add on coverage later, which will increase your premiums. Added coverage is known as an insurance rider.

Determine how much money you think your dependents (if you have any) will need. If you're married, have a conversation with your spouse about what they consider to be the best option. Ultimately, you should carry enough life insurance coverage to take care of your loved ones financially if something unexpected happens to you.

When should I buy life insurance?

People often purchase life insurance after reaching life milestones, such as getting married or having a child. In these moments, you often realize that you now have other people depending on you financially.

The fact is, you can buy life insurance at any time. You don't have to be in the middle of major life changes to think about the future and what will happen if you're gone. Keep in mind, waiting until later in life to sign up could mean paying higher insurance premiums. But it can still be advantageous to hold off on getting life insurance, especially if you get married or have children later in life.

How do I buy life insurance?

You can often get life insurance for free or at a discount through your employer. Check with your supervisor or your company's human resources department to see if that's an option.

You can also get customized life insurance quotes online through different insurance providers’ websites. Some insurers allow you to check rates instantly by providing basic information about yourself, like your age, health status and the type and amount of coverage you're seeking. When it's time to buy a policy online, some providers may want to conduct a health screening, while others may only require you to fill out a medical questionnaire.

When buying life insurance, make sure to ask questions about anything you’re unsure about. Always read the fine print to make sure you're familiar with all the terms and conditions of your insurance policy before you sign any contracts.

When you’re ready to shop for life insurance, compare quotes from multiple companies through Policygenius, a Credible partner.