How is Life Insurance Priced? (Key Pricing Factors Explained)
Learn about Pricing of Life Insurance Policies
When it comes to buying life insurance, the premium you will be charged for your policy is one of the most important factors in deciding which insurance company and plan you will select.
So, how are premiums determined? The life insurance company uses information you provide to assess the risk you present to the insurer of dying while you will be insured.
Obviously, you need to find out how much your life insurance will cost, to make sure you can afford to buy the amount of term life insurance coverage you need.
Your lifestyle (risky hobbies or frequent travel to high risk areas with disease or war), your family medical history, and your physical health are key factors in determining your life insurance premium. The greater the risk for each of these factors, the higher your premium for life insurance.
Here’s an example for you – A healthy 35 year old man buys a 20 year level term life insurance policy which has a fixed annual premium of around $440 per year for $500,000 of life insurance protection.
However, a healthy 50 year old man who buys the same policy might pay $1,350 per year.
For example, a healthy 35 year old man who pays $440 per year for a $500,000 term life insurance policy would pay about $4,400 a year for a universal life insurance policy, in part because a portion of the premiums go into an investment component of the policy.
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