Many websites talk about why people should have term life insurance, but very few give actual numbers about how much it costs. On November 15, 2006, Insure.com published the results of a survey designed to find the lowest rates for level term life insurance from among 25 life insurance companies rated “Superior” (A++ and A+) or “Excellent” (A and A-) by A.M. Best Company, an independent rating service. The survey found that rates had fallen to all-time lows, with consumers paying as little as $108 a year for a 10-year, level term policy with a death benefit of $250,000.
Only the healthiest and slimmest people can qualify for the lowest term life insurance rates, of course. For example, a 6-foot-tall man can weigh no more than 206 pounds to qualify for the lowest price. The rate goes up with weight. At 215 pounds, a man would pay as much as 30 percent more than the minimum rate. Other factors that can prevent an applicant from receiving the lowest rates are blood pressure, cholesterol levels, a history of heart disease in the family, the use of tobacco within the last five years (except occasional cigar smoking, in some cases), and even a poor driving record.
Rates are going down because life expectancy is going up. According to a 2007 report by the National Center for Health Statistics, life expectancy at birth rose to a record high of 77.8 years in 2004. When people live longer, they pay more premiums to their insurance companies. In addition, the companies have more time to earn money with the premiums before having to pay the death benefit. The insurance companies also pay fewer death benefits, since fewer people die in a given year. In 2004, for example, there were 50,673 fewer deaths than in 2003, the largest single-year decline in raw death counts since 1938. Some of the saved death benefit money shows up as profits, and some is used to reduce rates.
The survey priced ten-, twenty-, and thirty-year level term life insurance policies with death benefits in three popular amounts: a quarter of a million dollars, half a million dollars, and one million dollars. Life insurance quotes were obtained for people aged thirty to seventy, in five-year increments.
The youngest people received the lowest rates, of course, because they are expected to live the longest. Both 30- and 35-year-olds could buy a 10-year, $250,000 policy for $108 a year and a 20-year, $250,000 policy for $153 a year. 30-year-olds could get a 30-year policy for $228 a year. The price for a 30-year policy for 35-year-olds was $250 a year. Prices for men and women this age are the same for a policy worth $250,000.
Prices go up with the years. Compared to rates for 35-year-olds, rates for 40-year-old women are 17 percent, 25 percent, and 30 percent higher for 10-year, 20-year, and 30-year policies, respectively, at the $250,000 level. Rates for 40-year-old men are the same for 10-year and 20-year policies, but increase 26 percent for 30-year policies. Men pay less than women for a 30-year policy at this age because women are more vulnerable to cancer at an early age than men are. Both men and women pay $130 a year for a 10-year policy and $203 a year for 20-year policy. Men pay $335 a year for a 30-year policy, while women pay $355 for a 30-year policy.
The statistical blip disappears by age 45, never to return: Women will never pay more than men for any term life policy. Women and men both pay $183 a year for a 10-year level term policy at age 45. However, women pay less for 20-year and 30-year policies: $318 a year and $428 a year for women, compared to $340 a year and $520 a year for men.
At 50, women and men still pay the same amount for a 10-year policy: $263 a year. Men begin to pay substantially more than women of 20- and 30-year policies: $510 and $768 a year for men, compared to $370 and $585 a year for women.
Starting at age 55, men pay more for every term at the $250,000 level. For example, men pay $403, $773, and $1,550 a year for 10-, 20-, and 30-year policies, respectively. Women pay just $345, $580, and $1,080 a year for the same term policies.
Prices also go up with death benefit amounts, but the increases are not proportional. A 10-year term policy worth $1 million does not cost four times as much as a 10-year policy worth $250,000. This is because the costs associated with creating and maintaining a policy are the same for the insurance company, no matter what the death benefit is. In this sense, policies with higher death benefits are a bargain. For example, at the $1 million policy level, a 30-year-old man will pay $230, $420, and $710 a year for 10-, 20-, and 30-year term policies. For 4 times as much of a death benefit, a 30-year-old would pay only 2.12, 2.74, and 3.11 times as much in premiums each year, depending on the length of the term.
Keep in mind, too, that $250,000 or even $500,000 may seem like a lot of money when a policy is taken out, but if the death benefit is paid 25 or 30 years later, the death benefit will not seem as large, due to the affects of inflation.