If you buy a 500k term life insurance policy and die, it may be enough to pay for the mortgage on your family’s home and provide enough to cover the cost of sending your children to college.
Don’t assume you can’t afford life insurance without getting quotes. It might be more affordable than you think and will financially protect your family for years to come.
Moreover, term life insurance, although a straightforward insurance product, comes with important options. In this article, we’ll explore those options and also deal with the underwriting aspects that can impact your monthly premiums. Let’s get started.
How Much Will a $500,000 Term Life Insurance Policy Cost?
The average cost of a life insurance policy is typically the first thing most people ask about. It’s an interesting question to answer. Although life insurance companies establish rates per $1,000 of coverage, there are many things that can affect the rates right from the start. This is because life insurance companies go through an underwriting process to calculate which rate classification they will assign to each applicant.
Since each applicant is different, what I might pay for a $500,000 term life insurance policy will probably be different than what you will pay for the same amount of coverage. Here’s why…
Underwriting Questions that will affect your rates:
Your Gender
Since women generally live longer than men, a female’s rates are generally less than a male’s:
Monthly premium for a Woman vs a Man for a 20-year 500,000 in Term Life insurance:
| Applicant’s Age | Female | Male |
|---|---|---|
| 20 | $14.85 | $17.84 |
| 30 | $17.84 | $18.26 |
| 40 | $23.35 | $28.03 |
| 50 | $54.04 | $69.49 |
| 60 | $141.37 | $199.90 |
Your Medical History
Certainly, your current and historical health can affect the classification you’re assigned:
Monthly premium for a 30-year-old Woman vs a 30-year-old Man for a 20-year $500,000 Term Life policy with different health classifications:
| Applicant’s Classification | Female | Male |
|---|---|---|
| Table 1 | $32.09 | $37.93 |
| Standard | $28.23 | $34.18 |
| Standard Plus | $26.69 | $31.36 |
| Preferred | $18.54 | $23.77 |
| Preferred Plus | $15.29 | $18.26 |
As you can see by the chart listed above, the better rate classification you are assigned, the lower your insurance premium will be.
Additional Underwriting Considerations
Here are the other personal aspects that will allow the underwriter to assign you with the appropriate health classification:
- Age
- Nicotine Use
- Occupation
- Lifestyle and Hobbies
- Foreign travel
- Amount of death benefit
- Number of Years (policy term)
All of these underwriting categories are considered before assigning your rate classification.
Policy Term Options
Probably, the only thing that most life insurance companies agree on is the number of policy terms they are willing to offer. Most companies offer policy terms of 5, 10, 15, 20, 25, and 30 years. However, recently we’ve seen companies begin to offer 35 and 40 year policy terms depending on the age of the applicant. That’s almost like buying permanent life insurance at a very low rate.
Certainly, it makes sense that the longer policy you choose, the more premium you’ll pay to the insurance company. It’s basic common sense, the more risk you present to the underwriter, the higher your premium will be.
Here’s a quick example of how the policy term will impact your insurance premiums. This premium example is for a 30-year-old healthy non-smoking male who wants $500,000 in coverage:
| 10 Year Term | 15 Years | 20 Years | 25 Years | 30 Years | 35 Years | 40 Years |
|---|---|---|---|---|---|---|
| $12.89 | $13.58 | $18.26 | $24.21 | $28.87 | $37.02 | $53.01 |
What about Optional Riders?
Riders provide additional coverages to your policy, such as living benefits, disability insurance, child and spousal term riders, and living benefits. Their importance should not be understated and as such, if an agent you might be speaking with does not bring up the importance of optional riders, it’s time to end the conversation.
Here are the optional insurance riders that can change your term insurance policy from a simple death benefit into a proper way of mitigating your surviving loved ones’ financial risk if you’re no longer in the picture.
| Optional Rider | Description |
|---|---|
| Accelerated Death Benefit | Accelerated death benefit riders are often included in term life insurance policies. They are a living benefit, which means that you do not need to die to get the benefits. Generally, the insurer will advance a large portion of the death benefit to the insured if he or she is diagnosed with a terminal or other covered illness. |
| Disability Waiver of Premium | This critical rider is a provision of your insurance that states the company must waive your premiums when you are disabled and unable to work. Your disability waiver lasts for a predetermined amount of time which is stated in the policy contract. |
| Guaranteed Insurability Rider | The problem with waiting to buy more insurance is twofold; you may not be able to afford it in the future, or you may be too ill to even qualify for it. Thankfully, the guaranteed insurability rider will allow you to increase your insurance coverage at certain intervals without a requirement for additional medical underwriting. |
| Accidental Death Benefit | This is one of the most popular optional riders because it allows for the applicant to increase the death benefit if death is the result of an accident. It is also one of the least expensive riders available. |
| Child Term Rider | The child term rider provides for the insurer to cover all dependent children in the household with term life insurance but the insured is only charged for one child. Additionally, any child who is aging out of the rider’s coverage can convert the term insurance to permanent insurance without having to offer proof of insurability. |
| Return of Premium Rider | Although the return of premium rider can be expensive for older applicants, it should still be considered. The rider provides for the insurer to refund all premiums to the insured if the insured outlives the term of the policy. The returned premium is paid in a lump sum and is tax-exempt for the insured. |
In Conclusion
Although you’ve likely learned from this article that the cost of life insurance coverage is not as simple as most people think, it should be good to know that with term life insurance there are many options to consider that will help you purchase a term life insurance policy that is right for your circumstances and budget.
Additionally, there is no need for surprises when you understand in advance how your policy will be rated and the different options you have. You’ll know in advance whether your quote will fit your financial situation. Start the process by completing the quote form on this page.
