What Is the Cost of Term Life Insurance?

Lynn Leritz is a vice president of Insurance Solutions.

Term life insurance rates can vary a lot depending on things like your age, gender, and health. That means the monthly cost for term life insurance could range anywhere from less than $20 a month to a few hundred dollars a month, depending on these factors.

Average monthly premiums for term life insurance

The average monthly premium—in simple terms, how much you pay—for term life insurance can vary a lot. Your premium will depend on your age, gender, health and whether you smoke. Of course, it also depends on how much death benefit you want to be paid to your loved ones if you die during the term. The length of the coverage can also affect how much you pay.

Every life insurance company may consider different factors when determining its term life insurance rates. In general, the factors that impact term life insurance costs include these:

The size of the death benefit

Your loved ones will get the death benefit payout if you pass away during the term the insurance covers you. It’s designed to help them continue their lifestyle without you. That might include paying a mortgage, car payments, tuition or student loans, and other everyday expenses.

The amount of coverage you need is a key factor that impacts how much your policy will cost. The more coverage you need, the higher the premiums are likely to be.

Age of the insured person

One of the leading factors in determining life insurance rates is age. Younger people tend to be healthier, so premiums tend to be lower for younger people.

If you’re younger, it’s common to be dealing with student loans and other drains on your income, so term life insurance can be a good fit. A term policy’s affordable premiums can help you balance getting coverage with other financial goals—and enjoying life. Then, as the years go by, you may switch some or all of your coverage to permanent life insurance. People often use a process called term conversion to get permanent coverage without having to take another health exam. But not all term policies have a term conversion benefit, and that can also affect the price of the policy.

Gender of the insured person

Statistically, men tend to have shorter life expectancies than women—which is why men can expect to pay slightly more for life insurance policies than women of the same age and similar circumstances.

Insured person’s health

The insurance company needs to evaluate your risk in order to give you the lowest possible premium. Part of the company’s analysis is a look at factors that influence your lifespan. The company looks at things like your past medical history and current health.

The process can be mostly online and can be surprisingly fast. Some term life policies will require a medical exam to assess your health. Sometimes it includes your blood pressure along with other vitals and maybe even a blood sample.

In recent years, more and more insurance companies have allowed clients to get a life insurance policy without a medical exam, but the company still electronically reviews your health history. So, it’s usually to your advantage to start coverage when you’re young and healthy.

Impact of risky jobs and hobbies on premiums

If you have a dangerous job or participate in risky hobbies, you may have to pay higher premiums for term life insurance. Occupations like construction worker, aircraft pilot or firefighter are considered high risk because of the increased chance of injury or death. And hobbies like skydiving, scuba diving or rock climbing can lead to higher premiums.

Insurance companies also look at lifestyle choices such as smoking, drinking and drug use when determining your rates. Smokers, for example, pay much higher premiums because of the well-documented health risks associated with tobacco use. Even occasional smokers may face increased costs. Likewise, heavy drinking or a history of drug use can lead to higher premiums due to the associated health risks and potential for accidents.

It's important to be honest about your job, hobbies and lifestyle when applying for term life insurance. By understanding how these factors affect your premiums, you can make informed decisions and find a policy that fits your needs.

How are life insurance rates determined?

Life insurance companies set prices according to how risky each person is to insure. In fact, roommates or spouses will often pay different amounts for comparable policies. A company does this risk analysis using the factors described above (among others). They call this process “underwriting.”

A physical exam is sometimes required by insurance companies. In a few cases, it involves the insured person being evaluated by a medical professional.

Types of term life policies

Life insurance policies can be structured in different ways. Here are some examples.

• A policy could be set up to keep your premium the same throughout the entire term. That’s known as “level term life insurance.” The amount you owe stays the same over the term of the policy, which is often 10 or 20 years. You’ll have predictability in your payments.
• Payments can also increase over the years with a type called “annual renewable term life insurance,” which allows for premiums to be lower in the first few years and then increase as your income likely increases.
• Or the payment could be set up to decrease over time. This type of policy is “decreasing term life insurance,” and the death benefit itself reduces along with the payments.

In any case, the coverage ends at some point. It might be after 10 or 20 years or when you reach age 80. It all depends on how the policy is set up. Another type of life insurance is called “permanent life insurance” because it never expires as long as you pay premiums.

Can term life insurance policies convert to whole life insurance?

Yes, a type of coverage called “convertible term life insurance” can become whole life insurance. This process is known as term conversion. Here’s one scenario where this makes a lot of sense.

Soon after having children in their 30s, a couple buys convertible term life insurance as a low-cost way to provide a financial safety net for each other and the kids.

Over time, they realize that they’re ready for permanent coverage, such as through a whole life insurance policy. They contact their financial advisor and get the conversion paperwork started. They’re still young enough to convert their policies without a medical exam. The new policy will be more expensive than their term policy, but the death benefit never expires, and the policy will also accumulate cash value that they can use throughout their lives.

Term life insurance policies don’t need to be converted all at once. They can often be converted in portions. If you’re considering a term conversion, be sure to ask about all your options. The term conversion option may end at a certain age, such as 40.

Mixing term and whole life insurance

You don’t necessarily have to choose one type of policy over another. It’s not necessarily term vs. permanent insurance—it can be some of each. Many people have multiple policies to satisfy different financial goals.

For example, because term life is cheaper than whole life, a couple might choose some of each.

• They might use term life to cover a time frame such as their youngest child’s years living at home. Once the child reaches adulthood, the parents’ term policies might be scheduled to end.
• The couple may purchase a smaller whole life insurance policy. Even when the kids are young, this policy starts accumulating cash value. This provides the couple with more flexibility in their financial future. For example, if they need cash for a major project, they’re able to borrow against the policy or, if they no longer need the death benefit, surrender a portion or all of their policy. (Note that surrendering your policy also ends your death benefit and may have tax consequences. With a loan, your death benefit will be reduced by the amount of the loan until it’s repaid. The loan will accrue interest.)

Finding term life quotes and rates

There are many different life insurance plans and options to choose from, and everyone’s individual circumstances are so different that it often helps to speak to a financial advisor about your unique situation.

Working with an advisor can help you get direct feedback in real time on what sorts of steps to take next to ensure that you find the right plan for your needs.