If you are in the market for a new life insurance policy, there are a few things you should know before committing to purchasing a policy. For instance, the age of the policy holder significantly affects available life insurance rates. Life insurance rates, or how much you will pay for insurance, are dependent upon many factors. Here, we will discuss how age and aging affects your life insurance rates.
Thinking about Policies
There are three types of life insurance policies: term, whole, and universal.
• Term. Term policies offer insurance for a predetermined amount of time.
• Whole. Whole policies accumulate a specific cash value.
• Universal. Universal policies are flexible, and accumulates cash value over time, and you can shift between the policy’s different financial components (typically insurance or savings).
The type of policy you get will largely determine your life insurance rates. For example, the cash value on whole and universal policies can increase or decrease your premiums.
Thinking about Age
Regardless of the type of policy, the most important factor in determining life insurance rates is age.
The annual premium (i.e. rate) of a given life insurance policy is primarily dictated by how old the policy holder is. Simply put, the younger the person, the lower the rate. For each year that you age, your life insurance rates will also increase. Industry experts identify a 5-12% increase each year, depending on your age range. It may seem unfair, but from a business perspective, the closer somebody is to the national life expectancy age, the more risk is involved for the insurance company.
For term policies, life insurance rates are set at the time of purchase. In other words, regardless of the age you are when you first take out the life insurance policy, the rate is placed at a set amount at the time of purchase. For the entire duration of the policy, your life insurance rate will neither increase nor decrease. Term policy life insurance rates work in this way by averaging out the yearly rising premiums. So, instead of having a rising premium every year, you pay a standard rate every year that might be lower or higher with another type of policy. However, there is a drawback to term policies: when the term expires, you might experience increased rates, depending on how old you are.
For whole policies, life insurance rates increase with age. Typically, insurance premiums are decided by the insurance carrier, and are reevaluated each year you hold the policy. So, with each birthday your life insurance rates will increase. This rise in price occurs because of the relationship between cash value and mortality changes. As your mortality rises (your age increases), cash value decreases. (Remember, whole policies accumulate cash value over time.)
For universal policies, life insurance rates do not tend to be significantly influenced by age. Universal policy premiums might go up or down depending on the rate of return on the cash value. In order to keep coverage and ensure the policy remains in effect as you age, you may have to include a higher funding amount, especially if the policy ends up returning a lower amount of cash value.
Thinking about Coverage
Depending on the type of policy you are seeking and the insurance carrier you work with, you may or may not be offered coverage.
Often, insurance companies will require you to undergo health-related testing to determine if you qualify for coverage. Below are some common examples of qualification tests based on health:
• Medical exams
• Physical exams
• Blood testing (e.g. blood borne illnesses like HIV)
• Urine testing (e.g. Drug use or pregnancy)
• Psycho-therapy exams (e.g. psychiatric illnesses like Depression and Anxiety)
Furthermore, you might be offered specific plans because of your age. Below are some common examples of qualification terms based on age:
• The 20-year plan. Term policies typically only last 20 years. If you are between the ages of 18 and 70, you will likely only be qualified for one 20-year term policy. Once you have completed a full 20-year plan, it is unlikely you will be able to qualify for another 20-year term policy.
• Cognitive medical testing (e.g. age-related mental illnesses like Alzheimer’s and Dementia)
Aging, in Sum
In conclusion, age indeed significantly affects the premium of your life insurance policy. And although age is of concern for life insurance companies, annual premiums might be determined by other life and lifestyle factors,. Other life elements that might influence your life insurance rates include:
• Quality of health
• Smoking status and drug use
• Family health history
• Hobbies and recreational activities
• BMI (or height and weight)
• Personal medical history/number of hospitalizations
• Number of dependents
Still, life insurance rates may be determined by other life and lifestyle factors, age is of concern for all life insurance companies. To get the best life insurance rates, do your research and shop the market before purchasing.