What is the cost of life insurance?

Younger individuals typically face lower cost of insurance & life insurance premiums due to their longer life expectancies and lower risk of illness. Premiums can increase with each additional year of age, so making an early purchase is advantageous. This trend becomes particularly noticeable after the age of 50, when premiums can rise more steeply.

When looking into what is the cost of life insurance, statistics show that women generally live longer than men by nearly five years², resulting in lower cost of insurance & life insurance premiums for women due to their extended longevity.

Smokers usually pay significantly higher cost of insurance & life insurance premiums, sometimes more than double, due to the increased health risks associated with smoking. This can include the occasional use of cigarettes, cigars, or vaping products.

Underwriting commonly includes a medical exam noting key health indicators like height, weight, and cholesterol levels. Well-managed health conditions can lead to more favourable rates, while “no exam” policies may cost more.

Your job can significantly affect your life insurance premiums. Engaging in high-risk professions such as mining, construction, or firefighting, where the risk of injury or death is higher, often results in higher insurance costs compared to less hazardous occupations.

Engaging in high-risk activities, such as car racing, scuba diving, or rock climbing, or working in dangerous professions like mining or law enforcement, can lead to higher cost of insurance & life insurance premiums.

A family history of serious illnesses like cancer or stroke can increase your premiums, especially if these conditions have led to early deaths in your family.

Generally, the higher the face value of your policy—that is, the amount the policy will pay out upon death—the higher your premium will be. This is because the insurer is taking on a greater risk of a larger payout

The type of life insurance policy you choose affects your premium. Term life insurance is typically less expensive than permanent (including whole life) insurance. This is because term life only covers you for a specified period and does not build cash value, so there is a chance you will outlive the policy without the insurer needing to pay out.

For term life insurance, the duration of coverage is also a factor. Longer terms generally cost more than shorter terms because they extend the period during which the insurer might be required to pay the death benefit.

Additional options like convertibility (the ability to convert from a term to a permanent policy without further medical examination) or renewability (the option to renew the policy at the end of its term without requalifying) can increase the cost of a policy. These features add flexibility for the policyholder but also increase the insurer’s risk.

Premiums can be level (the same throughout the term), increasing, or decreasing. Level premiums are typically higher initially than increasing premiums but can be more cost-effective over the life of the policy.

Adding riders—like those for accidental death, child insurance, or critical illness—can provide additional benefits but also increase the premium cost since they expand the coverage.

Calculate how many years your family would need financial support if you were no longer able to provide for them. For instance, if you earn $60,000 annually and want to support your family for ten years after your death, you will likely want at least $600,000 in coverage.

Add up all your debts, including mortgage, car loans, credit cards, and other liabilities. It would be prudent to ensure your life insurance coverage is enough to clear these debts so they don’t burden your family.

If you have children, consider the costs of their education. Include potential college or university fees to help ensure their educational paths are secured.

Factor in the costs of funeral expenses and any medical bills that might be outstanding at the time of death. These can often amount to tens of thousands of dollars.

Although less common, if your estate is large enough to incur estate taxes, additional insurance can help cover these costs without requiring your heirs to liquidate assets.

Beyond just replacing income, consider what it will take to maintain your family’s current lifestyle. This can include the cost of extracurricular activities, home maintenance, and anything else they regularly enjoy.

Consider the impact of inflation on future financial needs, especially if you are planning long-term. This ensures that the life insurance payout maintains its purchasing power over time.