Life Insurance premiums are based on two major factors: your age and health.
All other factors being equal, the younger you are, the cheaper your life insurance policy will be.
Therefore, if you don’t already have life insurance, the most affordable time to buy it is right now! Every day you age, you’re drawing closer and closer to higher premiums. Ironically, the youngest adults seem to think they don’t need it until far down the road, while older buyers wish they would have locked in their rates a long time ago. Here are the brackets:
- Life Insurance for 20-29 Year Olds
- Life Insurance for 30-39 Year Olds
- Life Insurance for 40-49 Year Olds
- Life Insurance for 50-59 Year Olds
- Life Insurance for 60-69 Year Olds
- Life Insurance for 70-79 Year Olds
- Life Insurance for 80+ Year Olds
Insurance Age: What Is It?
If you are going to shop for life insurance, you should know what your insurance age is to make sure you are comparing apples to apples.
For example, if you are currently 40 years old, but you turn 41 next week, you may be thinking you have one week left until your rates go up. Unfortunately, there’s a good chance you are too late.
Your insurance age, when discussing life insurance, is typically whichever age you are closest to! So if you are 40 years and 6 months old, you’re actually now closer to your 41st birthday, so the insurance company is going to view you as 41. (Not all companies do this, but most.)
This is because the law of large numbers insurance companies use to draft their premium tables involves grouping each person into a single age group. For their statistics to be most accurate, they have to categorize you into the age you are closest to.
The Younger You Are, The Better Your Rate
As we mentioned, your life insurance is largely based on your age when calculating your cost to own the policy.
Term life insurance is especially age sensitive when determining rates. This is because it is covering you over a very specific time period; the closer your life insurance period expires to your life expectancy, the more it will cost you.
- If you’re a young adult, the increase in premiums is small each year.
- If you’re middle aged, the increase in premiums starts moving faster.
- If you are a senior citizen, expect your rates to go up very fast every year you age.
Because your natural life expectancy is so far away, you are considered lower risk when your young. As you near it, you are considered a greater risk to the insurance company of having to pay a claim. As your risk goes up, guess what else does? Premiums.
How Your Age Affects The Amount Of Coverage You Need
Your life insurance coverage amount you decide on is somewhat tied to your age as well.
The idea behind life insurance is to replace income after you pass, or to pay off any debts your family might incur or already have to deal with.
If you are 25 years of age, and expecting to work until you are 65 years old, your family would miss out on 40 years of your income if you passed away now. If you are 45 and you expect to work until 65, your family would miss out on 20 years of income.
Your human capital, or the value of your future work, is highest when you are young. As you age, and your remaining work years diminish, the idea is while your human capital is declining, your assets should be increasing. Eventually, the hope is to retire, and your income is coming solely from the assets your accumulated, and not from you going to work.
What does this mean for your life insurance coverage amount?
If you are young, and you expect to be working a few decades, you may want to stock up on your life insurance now, especially since the premiums are going to be so low.
If you are already in your 40’s and 50’s, you may need less of a face amount because:
- Your human capital is declining, lowering your replacement cost
- Your debts should be declining, dropping your coverage needs
- Your premiums are increasing with your age, making life insurance less affordable
Other Costs Associated With Life Insurance As You Get Older
There are other costs involved with owning a life insurance policy as you age. One of those things are called riders.
Let’s take the Waiver of Premium rider, for example, which is one of the most common riders to attach to a life insurance policy.
The waiver of premium rider is something you can attach to your policy for a small fee which protects your policy should you become disabled. If you are disabled for 6 months or longer, the rider will kick in and start to pay your premiums for you. In this way, even if you lose your income because you’re not able to work, you’ll still have a life insurance policy which won’t lapse.
Your age, however, also determines the cost of the waiver of premium rider. If you are a young 25 year old, your body is expected to last much longer without any disabling injuries, whereas a 55 year old is much more likely to incur a disability.