How Much will Life Insurance Cost Me?

How Much will Life Insurance Cost Me?

Various kinds of life insurance have various-size premium obligations. Term policies have the lowest premiums, which has to do with the lower probability that a company will have to pay a death claim during that term. Other policies may have cash value that begs the question of how “cost” is defined, if there is a rate of return.

Life Insurance premium sizes and costs will depend on the type of policy and the underwriting decisions of the company for each person. The amount you will need to pay depends on a number of factors: type of insurance, your age, your health, and the amount of your death benefit.

Some policies have a guaranteed level premium, at least for a certain number of years, while other policies may require more or less premiums if the market goes one direction or the other. Term insurance has the lowest premiums of the types of insurances and it will be lower with better health, lower age, and lower number of years in the term.

Universal life policies will have higher premiums than term but can start out being much lower than whole life policies. If the insured intends to keep this coverage in effect permanently, the interest rate environment or investment experience associated with the cash value may cause the premiums required to go up substantially as the insured ages.

Whole life policies have level premiums, but they might self-fund once the cash value and rate of return, which might include company dividends, are high enough to pay future premium obligations. It could be that with universal, whole, or variable life, the policy costs nothing after a while and actually generates a substantial return on the premiums invested.

Considering the cash value grows tax-deferred and can be accessed tax-free, as well as providing a permanent tax-free death benefit (which might also grow), the question of “cost” must be reassessed in terms of initial outlay and expected returns.

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