How can life insurance be more affordable?

Life insurance is different from other types of insurance, in that you typically don’t think about it daily — and you will never personally benefit from your coverage. But it’s similar to other types of insurance, in that cheap isn’t always best.

You wouldn’t pick a medical or auto insurance policy just for its low price, right? It should be affordable, but in the end, you want the right policy for your needs.

So how is life insurance priced, and how can you make it more affordable while still meeting your needs? Is cheap life insurance the best option for you? Let’s look into those questions below.


What factors affect life insurance prices?

If you’ve already started exploring your life insurance options — including a search for cheap life insurance quotes — you may have noticed that the policy premiums can vary greatly.

There are three main factors that affect the premiums life insurance policyholders pay.

Mortality

It may sound strange, but the first factor that affects the price of your premium is how likely your policy provider believes you are to die.

Life insurers refer to “mortality tables” to estimate the amount of death benefits they are likely to pay out in a given year. So when you apply for life insurance, you are joining a large group of other policyholders believed to have a similar life expectancy.

Your relative position on a mortality table--a key to the cost of your insurance-- depends on a multitude of factors, including age, gender, health history, and more. To get a clearer picture how your current health affects where you sit in the mortality table, your insurer will often ask you to take a medical exam.

However, if you have a complicated health history or simply don’t want the hassle of completing a medical exam, a guaranteed acceptance whole life insurance policy might be the right fit for you.

A guaranteed acceptance whole life policy— meaning you don’t have to take a medical exam or provide any additional evidence you are healthy — will automatically be more expensive. Issuing a life insurance policy to someone whose health history is a giant question mark involves considerable risk for the insurance company. So it’s unlikely that you will find cheap life insurance with no medical exam.

Operating expenses

The next factor that affects policy premiums is the insurer’s cost of doing business. This could include anything from the cost of their office space and agent salaries to what they spend on postage, office supplies, and other expenses to run their business.

The part you pay to cover your insurer’s operating costs is called “expense loading.”

Investment

The last of our three main variables affecting the price of a life insurance policy is interest. As part of their business model, an insurance company will invest money in its accounts — the difference between the amount you pay in premiums and the amount the insurer will likely pay in death benefits — to generate additional income.

With a savvy investment strategy in place that generates income as a result of its investments, a life insurance company may reinvest its earnings into the business to improve product offerings and enhance service functions to improve the customer experience.


When is term life insurance the best choice?

If you’re looking for the most affordable policy possible, term life insurance may be a good choice. You can fine-tune the cost of your premium depending on how much you need, for how long and the extent you are willing to go to demonstrate you are healthy. Term life insurance policies typically have a term of one to thirty years.

These policies are priced lower than whole life insurance because they cover only a portion of your life and generally carry a lower risk for the insurance company that they will have to pay a death benefit.

Term life insurance may have a lower premium, but the price of this coverage for some term life policies will go up as you age or your health declines.


When is whole life insurance the best choice?

Whole life insurance is typically more expensive than term life insurance. That’s because whole life insurance is a permanent policy that guarantees death benefits to your beneficiaries no matter when you die.

If you are prepared to pay a higher premium (that remains level over the life of the policy) for the ease of lifelong coverage, a whole life insurance policy is a great choice for you.

What’s more, if you take the long view, consider that most whole life policies actually generate cash value over time — meaning you can eventually borrow against that money to pay your premium or cover other expenses. Whole life policies can actually be smart additions to a diverse portfolio — in addition to being tangible commitments to the well-being of your beneficiaries after your death.


How can I make life insurance more affordable?

Finding an inexpensive whole life insurance or a cheap term life insurance policy may not be your best strategy, because it’s more important to find the policy that fits your needs best. However, there are a couple of ways to make term life insurance more affordable:

  • Start young: It's more likely that you'll find cheap life insurance when you’re young and healthy — before you “need it” — than you'd be if you seek it out as you get older or have more health problems.
  • Shop around to compare rates: Be sure you’re making apples-to-apples comparisons among plans, and as you begin to narrow it down, evaluate potential insurers on factors beyond cost.
  • Look for policies that reward good health: There are policies out there that offer a level of underwriting that rewards you for your good health but doesn’t require invasive medical exams. Policies that are issued based on health questions and health care databases can offer a useful middle ground.

Ready to start shopping for life insurance? to find rates for term and whole life insurance policies — based on your annual income or how much you’d like to pay each month.