Average Term Insurance Premiums

The average term life insurance premium is based on several factors. Insurance companies base the amount they charge for coverage on the age, health status and lifestyle choices of the applicant along with the amount of the death benefit and the length of the term.

Younger individuals will almost always pay less for term insurance than will older applicants. And healthier individuals will usually pay less than those who are not in the best of health. Lifestyle choices such as whether an applicant smokes, pilots his or her own private plane and even a low credit score can affect the amount an insured individual pays in insurance premiums.

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Average Length

The length of the term and the amount of the death benefit also affect the amount of the average term insurance premiums. For example, premiums for a 5-year term policy will usually be less than premiums for a 20-year term policy. The longer the policy remains in effect, the longer the life insurance company has the risk of paying a claim. However, it is generally less expensive to purchase a 20-year term policy than purchasing a 5-year term policy and then renewing it three times.

Average term insurance premiums also depend on whether the applicant is male or female and the state he or she lives in. For example, in most states, men will pay more than women for term life insurance. In Montana, however, men and women pay the same rate. Each state has the power to establish the conditions under which an insurance company can sell policies within the state.

Average Term Insurance Premiums for Smokers, Non-Smokers and Seniors

The average term insurance premiums for smokers can be as much as double that of non-smokers. Further, a term insurance applicant who uses any form of tobacco will pay more than a non-tobacco user. This includes cigarettes, cigars, pipes and chewing tobacco. On average, smokers die earlier than non-smokers, which presents a higher risk to the insurance company that the insured will die during the term. Smokers who wish to reduce their average term insurance premiums should quit smoking 12 to 36 months prior to applying for insurance. Most insurance companies will lower the rates for smokers and other tobacco users who are tobacco-free for an extended period of time.

While some people feel that term insurance is not necessarily the best choice for seniors, it can be an affordable option for some. In particular, seniors who wish to ensure that their final expenses are covered, including the balance on a mortgage or car loan, a home equity loan or credit card debt, often choose a term life insurance policy to make sure these expenses are not left for family members to deal with. Since the beneficiary can be of his or her choosing, some seniors name a grandchild in order to pay for a college education or down payment on a house.

It is true, however, that the average term insurance premiums seniors pay are more than those paid by younger policy owners. For this reason, most insurance companies and agents advise that term insurance be purchased as early in life as possible.

Average Term Insurance Premiums for 5-Year and 20-Year Terms

The average premiums for 5-year and 20-year term policies vary dramatically. In general, the longer the term, the higher the premiums will be for the policy. This is because the insurance company is assuming the risk of payout of the death benefit for a longer period of time.

The most popular type of term policy is a level benefit policy. This type of term insurance pays the same benefit amount to the beneficiary regardless of the year death takes place. For example, regardless of whether a 20-year policy owner dies in year two or year 15, the benefit paid to the beneficiary remains the same. In most cases, however, the owner of a level benefit policy may pay increased premium amounts every five years. As he or she grows older, the risk to the insurance company becomes greater.

Even though the average term insurance premiums for a 20-year term policy are more expensive, this type of policy may still represent the best value to certain individuals seeking term insurance coverage. Young people, especially those just out of college or just married, may find that the benefits of the 20-year year term policy are the best for their circumstances. Even the premiums on a more expensive standard 20-year term policy will more than likely be less than those on other types of term insurance policies and permanent life insurance policies.

Average Term Insurance Premiums Compared to Permanent Insurance Premiums

Average term insurance premiums are usually far less expensive than average permanent insurance premiums. Permanent insurance products, such as whole life, universal life and variable life offer an investment component that is not available with term insurance. A portion of the premium that is paid on a permanent life policy is applied to an investment account while the balance is applied to the cost of providing the insurance, or the death benefit. The added cost of the premiums covers the additional administrative costs to the insurance company.

Because term insurance is the simplest form of life insurance to manage, insurance companies are able to offer it at a reduced cost. The average term premiums can be up to 50% less than those for permanent insurance. For this reason, term insurance is typically recommended for those who need to have coverage but don’t have substantial resources, for those who don’t need the added benefit of the cash-building investment account and for those who don't need coverage for their entire lives.

Business owners may also find that the average term insurance premiums are cost effective in order to provide coverage on the business. Ensuring that equipment loans, payroll and rent costs can be paid in the event of the death of a key employee are often cited as the top reasons for purchasing term insurance.

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