When men and women decide it’s time to buy life insurance, they have to choose between the types offered. Premiums for whole life insurance cost more than for term life, but many consumers like the investment characteristic of whole life.
Whole Life and Term Life
Term life is similar to automotive insurance. The policyholder pays the premium for the chosen term, which keeps the policy active. If this person ever stops paying or cancels the policy, the insurance ends. Generally, the shortest term available is one year, but that length is uncommon. Five-year and 10-year policies are the shortest available from most companies.
Whole life, in contrast, builds up a cash value over time. It earns money, just as other investments are intended to do. The cash value can be withdrawn or borrowed against.
The amount of the death benefit does not change, however. The full premium can be paid according to a payment arrangement over many years, or the full amount can be paid at the start of the policy. The policy is in place for the person’s whole life, which can be long after the payments have ended.
Factors Related to Premiums
Several factors affect the rates that customers pay for whole life.
On average, the younger a person is, the lower the whole life insurance rate will be. The rate is locked in for the policyholder’s entire life. Thus, buying a policy as a younger adult is a distinct advantage. A person who applies at age 50 might pay twice as much as someone applying at age 30.
Many companies provide life insurance policies to senior citizens, but this usually is for term life. Short-term life insurance policies have the lowest premiums because underwriters know that the risk of death in one, five or 10 years is generally low for most individuals. Some insurance companies do not offer whole life policies to applicants above a certain age.
Depending on the age of the applicant, a medical exam may be required. If the applicant has a pre-existing condition that is a risk for early death, it may be difficult to buy whole life insurance. An example is uncontrolled high blood pressure or Type 2 diabetes. If a company does offer a policy, the premiums may be quite high.
On the other hand, if the applicant is in good health and has not experienced any significant medical problems in the past, the rates will be lower.
Men typically have to pay more than women for a whole life policy. That’s because at any age, men are more likely to die than women are.
For instance, men are at significantly greater risk of heart disease than women are. Heart disease is the leading cause of death in the United States for both genders, but one-quarter of these fatalities each year are men between the ages of 35 and 65, according to the U.S. Centers for Disease Control.
Underwriters also look at behavioral risks like smoking tobacco or vaping. Applicants who don’t use nicotine products can expect lower rates. People who drink excessive amounts of alcohol also are considered higher risk by underwriters.
Any convictions of driving while intoxicated may drive the rate higher. In fact, any criminal record with felony convictions can be a red flag to underwriters, especially violent offenses.
It may be tempting to lie about unhealthy habits on the application, but that could leave the beneficiaries without insurance upon the policyholder’s death. Legally, the insurer can refuse to pay if the company learns that this individual did smoke, use e-cigarettes, or drink more heavily than stated on the application.
Occupation and Hobbies
Another relevant lifestyle factor is the applicant’s occupation, since some jobs are more hazardous than most. Loggers, construction workers, roofers, farmers and over-the-road truck drivers may be quoted higher premiums than the norm, all other factors being equal.
The application may ask about hobbies. If the person enjoys pastimes that are potentially risky, the premium will probably be higher. Some examples include scuba diving, flying a private airplane, car racing and skydiving.
Amount of the Benefit
Of course, the amount of the death benefit is a factor in the cost of the policy. Larger benefit amounts translate to higher premiums.
Men and women who have decided that whole life is the best insurance for their own particular needs will want to seek quotes from more than one company. They can bring the rate down by choosing a lower death benefit. If they have a health problem like unchecked blood pressure, they will want to get that under control before applying for whole life. Unhealthy behaviors like smoking tobacco can be ended for good before applying. People probably won’t want to give up their favorite hobbies, but those with riskier pastimes can expect to pay a higher rate.