Term life insurance is a financial product that pays a benefit if you die during a specified time period, also known as a “term.” It’s intended to fill a financial gap for your beneficiaries when you pass away.
Term life insurance is different from whole life insurance. The money you put into a whole life insurance policy builds cash value that you can use later in life or that will add to the death benefit payout.
But, your monthly premiums are much higher for whole life than for term life. Term life insurance is the best option for most people for a few reasons:
- Term monthly premiums cost less than whole life insurance premiums
- Term life has higher coverage amounts than whole life insurance
Simply put, you get more coverage while paying less money each month. Plus, term the easiest type of life insurance to understand. You’re more likely to get started with life insurance if you keep things simple.
But how much will term life run you? Below, we’ll cover the factors that determine that, and show you some ways to lower your rate. Finally, we’ll go over some of the best term life insurance providers.
Table of Contents
- What Determines Your Term Life Insurance Cost?
- Ways to Reduce Your Term Life Insurance Cost
- Finding the Best Term Life Insurance Providers
What Determines Your Term Life Insurance Cost?
When shopping for term life insurance, you need to get multiple quotes. The easiest way is to plug your information into Policygenius. You can quickly browse quotes by coverage amount and term length.
To help you make a better decision, it’s important to understand what factors determine your life insurance rates.
These are the main factors:
- Term length
- Coverage amount
- Current health conditions
- Blood pressure and cholesterol readings
- Tobacco product usage
How Much Life Insurance Coverage Do You Need?
One of the first things to decide is how much life insurance coverage you need. This answer is different for every person.
An industry-standard rule of thumb is to get 10 times your annual salary. With this rule, a person who earns $40,000 a year should get $400,000 coverage. This rule will give your beneficiaries 10 years of income when you die.
To get a more accurate estimate, consider these costs:
- Any outstanding loans or debt you need to repay
- Income replacement
- Funeral and burial expenses
- Extra cash to pay for medical bills or your children’s college education
When my wife and I got our term life insurance, we included our home mortgage balance in our coverage amount. This way, my wife could pay the mortgage off if I passed away.
Also, you have to think about income replacement. I have a larger coverage amount than my wife because I’m the primary income earner. If I die early, I don’t want her to have to rush and find a better job to make ends meet.
To keep your premium costs low, you should first focus on your current debts, income replacement and funeral expenses.
What term length should you choose?
The most popular term life insurance product is a 20-year level term, but most providers offer these five term lengths:
- 10 years
- 15 years
- 20 years
- 25 years
- 30 years
Shorter terms cost less money each month, but you’ll pay more when you renew. That’s because most term life policies are “level” policies, meaning you lock in a premium amount when you buy.
As you age, premiums on new policies go up. If you’ve locked in a low rate for 20 years, you won’t have to worry about renewing at a higher premium the following decade.
But there’s no guarantee. You’ll need to do the math for your particular situation. If the insurance company’s premiums are much higher for a longer term, it may be cheaper to take out a shorter term policy and renew.
Still, there’s another argument for getting a longer term policy, even if it’s more expensive: It helps you hedge against the unexpected. As unpleasant as it is to think about, you might be healthy this year and be diagnosed with cancer next year. If you have to renew after your diagnosis, your rates will be higher. And, you run the risk of not qualifying for insurance at all.
None of us can predict the future and what our health will be like. Or, what life insurance providers will charge for new policies. That’s why it can be helpful to lock in a lower rate for a longer time.
A good rule of thumb is to first pick the coverage amount you need. Then, choose the longest term length you can afford.
What Age Should You Be When You Buy Term Insurance?
In insurance, as in many other areas of life, the sooner you start, the better. Each decade you wait, life insurance gets more expensive. You won’t see a large price difference between your 20s and 30s. But, the price gap widens between your 30s and 40s.
Insurance companies base your quotes on actuary tables. As you grow older, you’re more likely to die. There’s no skirting this fact.
A 20-year-old getting a 20-year term is less likely to die than a 40-year-old getting a 20-year policy. Therefore, insuring a 20-year-old is less risky for the insurer than a 40-year-old. You’ll pay less at 20 years old because you’re less likely to cash out your policy than a 40-year-old.
Sample Life insurance Quotes By Decade of Life
Below are several monthly quotes for a non-smoker in good health for a $500,000 policy.
Sample Life Insurance Quotes If You’re 20
You will pay the least when you get life insurance in your 20s:
Sample Life Insurance Quotes If You’re 30
The next table shows how much you can expect to pay each month when you turn 30.
Sample Life Insurance Quotes If You’re 40
Finally, let’s see how much you pay each month when you turn 40 years old. Getting a policy when you’re 40 can provide coverage as you near retirement.
Since life insurance gets expensive once you become a senior citizen, strive to become self-insured at that point. That means setting enough money aside in your savings account to replace your current term policy.
Do you notice any common trends with these three sample life insurance quotes?
Here are a few things that usually ring true:
- Rates increase as you age
- Females usually have lower rates than men (because they tend to live longer)
- Longer terms have higher monthly premiums
This is a good starting place. But, there are a few ways to pay lower life insurance rates, too.
Ways to Reduce Your Term Life Insurance Cost
These are the three easiest ways to pay less for life insurance:
- Choose a smaller coverage amount
- Get a shorter policy term (e.g., a 20-year term instead of a 30-year term)
- Request life insurance when you’re in your 20s or 30s
Besides these three tactics, here are a few other choices you can make to reduce your rates.
Don’t Use Tobacco
It’s true, tobacco users pay more for life insurance than non-tobacco users. Quitting this habit is hard, but it can save you money. For example, my sample quote is $57 more per month when I say I smoke three cigarettes per day.
Many life insurance companies classify smokers into two categories. “Standard smokers” use tobacco on a regular basis.
“Preferred smokers” might smoke on a casual basis or use tobacco alternatives like chew or e-cigarettes. Also, preferred smokers might have excellent health. If they didn’t smoke, they would qualify for the best non-smoker rates.
If you use tobacco, Legal and General has one of the lowest rates for tobacco users.
After you quit tobacco, you can qualify for non-smoker rates 12 months later. But, you may have to wait between three to five years for the best non-smoker rates.
If this is your situation, it may be better to get a 10-year term life insurance policy now. When you quit tobacco mid-policy, ask your provider if you can submit lab work to get a lower rate.
Get a Physical Exam
The physical exam was the part I dreaded most when I got term life insurance. I’m in excellent health and the exam wasn’t that bad. It was easier than your normal annual physical.
For me, the worst part was having to provide a blood sample. Otherwise, the nurse just took my weight and waist measurements. Plus, I had to answer a few basic questions.
If you are older or have a medical history, you may have to get a follow-up at a medical office. But, you don’t have to pay for any of these appointments.
In most cases, getting a medical exam means you pay a lower rate. This is because insurance companies like certainty. With no-exam life insurance, the insurance company doesn’t know as much about you. So, they usually charge a higher rate to protect against the unknown.
Tip: Use Ethos to compare quotes for no-exam policies and exam policies.
In some cases, your life insurance provider might not require an exam for small coverage amounts. For example, my wife and I got life insurance at the same time from the same provider. She didn’t have to get an exam because she has a smaller coverage amount. I had to get an exam because my coverage amount is above their no-exam threshold.
If you don’t need an exam, the insurance provider will request this information:
- Digital Medical Information Bureau (MIB) records
- Prescription history
- Driving record
Whether or not you get an exam, you still have to do a phone interview. This interview asks lots of different questions about your health history and your current habits. Your responses might also dictate if you need an exam to qualify for coverage.
Sample Life Insurance Rates for No-Exam Life Insurance
Below are a few no-exam rates you might pay for a $500,000 policy with a 10-year term from John Hancock.
As you can see, your monthly rate might be $10 to $15 higher for a no-exam policy. Plus, not every provider offers no-exam life insurance.
Maintain a Healthy Weight
As you age, you realize how much harder it is to stay trim. This is one reason to get a longer term policy, especially if you have a hard time losing weight.
Another factor life insurance providers use to determine your rate is your body mass index (BMI). Basically, are you overweight? If so, does it put you at risk of developing future health conditions?
Losing weight can put you into a higher applicant tier. In turn, you can pay a lower monthly rate.
Losing weight also usually leads to lower cholesterol and blood pressure readings. Plus, you’re less likely to develop negative medical conditions in the future.
Tip: A quick and affordable way to get term life insurance with no medical exam is through Bestow.
A Quick Note About Pre-Existing Conditions
Pre-existing conditions are a hot topic in insurance. Each provider has a different policy on pre-existing conditions. So, you should definitely get several different quotes if you have a lifelong condition.
In some cases, one provider may not offer coverage. Others might charge a high rate (maybe more than you can afford). And, other providers might charge more but still be within your grasp. The only way to find out is to get a quote.
You will have the best approval chances if your condition is stable or improving.
Maintain a Clean Driving Record
Avoiding speeding tickets, DUIs and traffic mishaps means cheaper car insurance. A clean driving record helps lower your life insurance rates, too.
Each traffic violation and accident increases the chances of you getting hurt or being killed. Clean driving records help show that you are responsible.
Also, check to see if your auto insurance provider offers term life insurance. If so, you can usually get a discount for having multiple insurance products. Many companies call this a multi-policy discount.
Avoid Paying for Insurance Riders
Another way you can save money is by not paying for insurance riders. Some companies include free riders. For instance, you can withdraw your policy early if you have a terminal illness. But, some companies might charge you a few extra bucks each month for this rider.
Other add-on riders include lost income from temporary disability, and insuring your children. You must decide if riders are worth the extra cost. If so, compare quotes including the rider.
Own Multiple Life Insurance Policies of Different Coverage Amounts
Another tactic to save money is to own multiple life insurance policies. For example, you could get a 20-year term with a small coverage amount. This policy can cover income replacement and funeral costs.
And, you might get a 10-year term for debt payments you will repay in the next decade.
This tactic can save you some money. After all, once you pay off your debt, you have fewer monthly bills. That means your surviving spouse isn’t as pressed to replace your income to pay the bills.
Once your 10-year life insurance term ends, you can save or invest the monthly cost. This puts you on the road to becoming self-insured.
One of your goals should be becoming self-insured. As you enter retirement, higher life insurance rates may no longer justify the potential benefits. At that point, your nest egg is a better source for covering these expenses.
Some providers offer a discount when you pay for the entire annual policy at once. If you have the extra cash to afford a lump sum payment, you might save up to 10%.
Finding the Best Term Life Insurance Providers
There are many life insurance providers to choose from. Your rate quotes from all of them will be similar. But, you should still shop around to make sure you find the best rate.
One of the quickest ways to quote shop is with Policygenius. It’s a life insurance search engine.
You enter your basic personal and health information. Then, Policygenius provides quotes from several providers. You can also compare quotes by term length. Plus, you can get a quote for your spouse at the same time.
JRC Insurance Group
If you like insurance comparison sites, you’ll probably like JRC Insurance Group. It compares quotes for up to 50 life insurance providers. All of these companies have a minimum “A” financial rating. So, the odds of the company going bankrupt during your policy term are low.
Term life policies are available in 10,15, 20, 25 and 30-year terms. You can also try to qualify for a no-exam policy with JRC.
Ethos is one life insurance provider to check out. By using smart data, Ethos looks at your physical and financial health to provide a quote. It can also be worth getting a quote if you want to avoid the traditional life insurance approval process.
Ethos uses technology for most of the underwriting process. So, you might be able to get more coverage for the same cost as other providers.
If you only want enough coverage to cover basic expenses, monthly premiums start at $6.
Haven Life is another insurer worth considering. It offers both exam and no-exam life insurance. If you need it, you can get up to $3 million in term life coverage. But, you can get smaller coverage amounts if you want a lower rate.
Haven Life also has an A++ rating from A.M. Best for financial strength. So, you can feel confident doing business with Haven Life for the next few decades.
Check out this story for a full list of the best term life providers.
Term life insurance is your most affordable coverage option. Getting your coverage at a younger age is the best way to secure a low rate. Living a healthy lifestyle can also help secure a low rate. In most cases, expect to pay less than $50 a month for insurance.