Term Life Insurance Costs
Many people searching for life insurance find that selecting a term insurance policy is the best option for reducing the cost of life insurance. Finding the best term rate will depend on two primary factors: The number of years selected for the term, which is also known as the length of the term, and the death benefit, which is the amount paid to the beneficiary or beneficiaries when the insure dies.Determining the optimal term and death benefit will vary for each individual. For example, a 40-year-old man with a wife and a 10-year-old child might consider a 20-year term policy. The 20-year term should be long enough to cover the child’s education costs, pay-off a mortgage, and otherwise ensure that the spouse and child are able to maintain their standard of living.Additionally, the risk factors of the insured, from occupational hazards to lifestyle choices, will also play a role in term life insurance costs. Life insurance companies use these factors in combination with the type of policy desired to determine the monthly premium, or the cost of the policy.
Factors That Determine Term Life Insurance Costs
Life insurance companies determine term life insurance costs by placing a value on the risk they assume when write a policy. They most often look at the main criteria, length of the term, amount of the death benefit and the risk factors of the insured in order to fairly value the risk they are assuming. This risk then results in the amount of premium paid.
Unlike like permanent life policies, which are in force for the life of the insured, term life policies are in force for a set amount of time. This is known as the term. Should the insured die before the term ends, the insurance company pays out the death benefit to the beneficiary. If the insured is still alive at the end of the term, he or she will usually have the option to renew the policy for another term, or convert the policy to a permanent life policy. Whether the offer is made to renew or convert depends on the insured’s age and health.
Term life insurance is most often issued in five-year increments, sometimes for as long as 30 years. The death benefit of a term life insurance policy can range from $5,000 to $2,000,000. Most insurance companies will charge a higher premium for a longer term and a higher death benefit.
All insurance companies employ underwriters. It is the job of the underwriting department to assess the individual risk factors of each insured. For example, factors such as age, sex, overall state of health, personal and family medical history, a risky occupation and lifestyle choices are all taken into account. These individual risk factors help the life insurance company to determine the probability of an insured dying by a certain age. Health issues like high blood pressure or diabetes, dangerous occupations like long-haul trucking and lifestyle choices like excessive alcohol consumption will all play a role in determining the cost of term life insurance.
Reducing the Term and the Death Benefit to Reduce Term Life Insurance Costs
For young families with a limited amount of cash available to spend on monthly term life premiums, there are several ways available to reduce term life insurance costs. The first is to choose the shortest term that will still cover the desired number of years without being too long. For example, a 40-year-old woman who has a working spouse, liquid assets and a 12-year-old child may choose a 10-year term policy. This policy may provide a death benefit that will be used only to cover the child’s college expenses.
By choosing a lower death benefit, the cost of a term life policy will also be reduced. It’s important that each insured choose the correct amount of insurance for his or her unique needs. But, it’s usually always a good idea to start with the smallest death benefit needed. And, by calculating the actual financial needs of dependents instead of making assumptions, it will be easier to arrive at the true amount of coverage necessary.
While many families will arrive at a policy value that covers day-to-day living costs for several years, others may only need enough to cover funeral and burial expenses. Still others will need enough to pay-off a mortgage or significant debt.
Reducing Individual Risk Factors to Reduce Term Life Insurance Costs
While it is not possible to reduce risk factors presented by family medical history, it is certainly possible to reduce individual risk factors. Reducing these risk factors may be the best possible way to reduce the cost of term life insurance and to increase overall health.
Having a physical before applying for an insurance policy will give the insurance company an up-to-date health picture. Information such as height, weight and blood pressure, along with blood sugar readings and HDL and LDL cholesterol levels will allow the insurance company to accurately assess risk.Other ways to reduce risk factors, and thereby potentially reduce term life insurance costs, include:Quitting smoking and all other types of tobacco products. Most insurance companies reduce premiums when tobacco has not been used for 12-36 months.Reducing the amount of alcohol consumed. Not only can this reduce premiums, it will also result in significantly better health for most people.Losing weight. Obesity is becoming more of a concern for life insurance companies as a larger percentage of Americans are obese.
Other ways to reduce term life insurance costs are to schedule regular appointments with health care providers, maintaining a good driving record and an acceptable credit score. It’s also possible to reduce the cost of premiums by paying via EFT (electronic funds transfer), or by paying quarterly or annually instead of monthly. Last but not least, compare as many policies as possible offered by as many insurance companies as possible to ensure that the policy provides the best amount of security and peace-of-mind for the family it is intended to protect.
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