Everything you need to know about Life Insurance Premiums

life insurance premiums
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    When you’re shopping for life insurance you’re probably going to come across a bunch of vocabulary that you’re a little unsure about. Words such as underwriting, beneficiaries, permanent coverage, and life insurance premiums to name a few. To make it even more of a head scratcher — not all life insurance companies use the same terms.

    Your premium is another way of saying “payments” that you need to send to the life insurance company that you have a policy with. In this article, we’re going to cover the most frequently asked questions about life insurance premiums and how they’re calculated.

    What are life insurance premiums?

    Life insurance premiums are the payments that are made to life insurance companies, to pay for a policy. In other words, you pay money (premiums) to an insurer in order to keep your life insurance policy active or “in force.” If you don’t pay your premiums, your policy will lapse or terminate.

    What are life insurance premiums determined by?

    Here are the 7 main factors that life insurance companies use to figure out what your life insurance premium will ultimately be:

    1. Policy Type

    Are you buying term life or permanent life insurance? Term life insurance is usually the least expensive policy and whole life can be the most expensive. There are so many other types of life insurance such as universal life, IUL, final expense, and guaranteed issue to name a few. 

    2. Coverage length

    Whole life insurance lasts you for your entire life which is a major reason why it is more expensive than term. With term life insurance policies, you have to choose a term length. The most popular term lengths are 10, 15, 20, and 30-year term. The longer your term life policy lasts, the higher the premium will be.

    3. Face Amount

    The more life insurance coverage you want the more expensive it will be. Face amount is another word for Coverage Amount. If your face amount is high, your premium will be higher.

    4. Health

    Your health is a major factor and is often the cause of the most confusion once the life insurance company approves your policy. Underwriters look at the insured’s personal health history, their family health history and if you take an exam — the results of your paramedical exam.  You may be “healthy”, but you may not be “life insurance healthy”. Underwriters analyze all of these health factors to determine your risk now and in the future.

    5. Life Insurance Riders

    Life insurance riders are a way to customize your life insurance policy. They can provide you additional coverage or adjust your policy. Some life insurance riders are are included at no extra cost depending on the policy and company you apply with.  Others riders will raise your rate.

    6. Lifestyle

    Life insurance companies may also order a Motor Vehicle Report to see your driving history. They can also look into your financials and find your credit score. They’ll want to know about your hobbies and occupation to determine if they’re dangerous and risky. All of these lifestyle factors are analyzed by underwriters to determine your health class rating which ultimately determines your life insurance premium.

    7. Age

    Life insurance premiums will go up as you get older. Rates increase slowly year by year until your get to around age 50. At this time rates begin to climb quickly every year.

    Read more about life insurance rates by age

    Life insurance premiums vs quotes

    You might be thinking to yourself, “Aren’t life insurance premiums and quotes the same thing?” — NO!

    This mistake can lead to some of the biggest frustrations with life insurance shoppers. Let’s first define the two and then see why life insurance shoppers may get confused:

    Life Insurance Premiums: Premiums are set by the life insurance company. They have to submit all of their rates to each state before they can even sell their products. After your apply for life insurance and you’ve completed the underwriting process — your actual rate (premium) is determined. This is what you’ll end up paying for your policy.

    Life Insurance Quotes: Quotes are are real rates, but they are simply the premium estimate that your life insurance agent will provide you before you apply. You can also get online quotes here.  However, to understand how life insurance quotes become your actual premiums — you need to go through a couple stages. 

    • Stage 1: You’ll get initial life insurance quotes. This can be accomplished either online or with the help of an agent. If you get quotes online unassisted, you’re running the risk of looking at quotes that you may not qualify for. To get accurate quotes, make sure to get help from an agent who will provide quotes based on your specific health and lifestyle details.
    • Stage 2: You’ll apply for life insurance and will receive your final offer with the actual calculated premium amount. Your final rate may or may not match up with your initial quote. Your quotes will be as accurate as the details that you give your agent. The more details you share, the more precise your life insurance quote will be.

    When can you pay your life insurance premiums?

    When your life insurance application is completed, you’ll be asked about how and when you’d like to pay for your policy. Most people choose to pay their premiums on a monthly basis, but you may have other choices. Here are some other payment options that may be available:

    • Monthly
    • Quarterly
    • Biannually 
    • Annually 

    You can often get a small discount when you pay quarterly and annually. It may be worth it when you look at the overall savings of that discount over the life of your policy.

    what is single premium life insurance policy?

    A single premium life insurance policy works similarly to other whole life insurance policies. The main difference is that you don’t pay a monthly or annual premium – you only have to pay one time lump sum single premium life insurance payment.

    It provides the same lifetime protection as other whole life policies, just with only one premium payment. There are never any additional payments that will ever have to be paid. Another way to describe it is that it’s “paid-up” after one premium payment.

    Can I deduct life insurance premiums on taxes?

    Unfortunately, the answer is NO. The good news is that in most situations, the life insurance death benefit that is paid to your beneficiary will be tax free. There are a few scenarios where taxes will have to be paid on a death benefit such as paying estate taxes. This would depend if your policy is paying out to an individual beneficiary or your estate.

    What happens if I don’t pay my life insurance premium?

    If you happen to skip a premium payment when it’s due it will force your policy into what’s called a “grace period.” 

    The grace period is typically 30 – 31 days where your policy doesn’t lapse after you’ve missed your premium payment. In other words, your policy won’t lapse even though your life insurance premium payment is past due.

    Now if you still don’t pay your premium during this grace period, your policy will lapse and has to be reinstated if it is going to resume coverage. However, it may not be allowed and there is no guarantee that it will be reinstated.

    If you have a whole life policy with cash value and it has built enough value in the policy — your policy may be able to pay for your missed premium payment. It would decrease the cash surrender value by the premium amount. This would not work with a term life policy because there is no cash value in term policies. If you have a term policy, your premium needs to be paid by its due date or it will go into the grace period. 

    Life Insurance Premiums

    Make sure you understand what your premium payment will be. At Life Insurance Blog, we want your to be sure you always have all the answers to your life insurance questions. If you have any questions about life insurance premiums, types of coverage, or anything else — give us a call.

    We’re here to help make applying and buying life insurance an easy and stress-free experience. We don’t work with only 1 company — we use over 60 top rated life insurance companies to help find the one that will get you the best deal. 

    So, what are you waiting for? Give us a call today or visit our Life Insurance Quotes page and see what we can do for you!

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    Michael Quinn

    Michael is a licensed life insurance agent, expert & owner of Life Insurance Blog. LIB has helped thousands of shoppers understand life insurance and secure affordable coverage.

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