One term vital to understand is life insurance premiums. Knowing what a life insurance premium is and how it’s calculated will help you make an educated decision about the policy you choose.
What is a Life Insurance Premium?
A life insurance premium is a payment made to the life insurance company for your policy. Understanding your premium is important because on-time payments keep your policy active. This recurring payment is determined by the life insurance company and is influenced by several factors. You may pay monthly, quarterly, or yearly premiums depending on your policy. Your premium may also be fixed or may increase during the coverage period.
How are Life Insurance Premiums Calculated?
When you purchase a life insurance policy, you are essentially entering into a contract with the insurer that states if premiums are met, they will issue a death benefit to your beneficiary. It’s in the insurance company’s best interest to weigh the risks associated with issuing you a policy. Some of these risks include your age and medical history. This is why some companies require a medical exam prior to issuing a policy.
Additional factors such as how much of a death benefit you want and any insurance riders can also affect your premiums. Here are several factors taken into account when calculating your premium:
Risk: Life insurance companies use data to gauge how much risk you pose when issuing a policy. Factors such as your age, lifestyle choices, and current health are all examined. If you are a smoker, you can expect the cost of your coverage to be higher. Since women tend to live longer than men, their insurance rates are typically lower. If you have any pre-existing health conditions or are considered overweight, this can affect the cost of your policy as well.
Type of policy: Two common types of life insurance policies are term life and whole life insurance. Term life insurance offers coverage for a set number of years. When that time has passed, the policy lapses. Term life insurance policies tend to have lower premiums because you have a better chance of outliving your policy.
Whole life insurance guarantees the insured coverage for life, as long as premiums are paid on time. These policies also have an added cash benefit. When premiums are paid, a portion of these funds go to this cash benefit and grow over time. With that being said, premiums for these policies tend to be higher.
Amount of coverage: In the event of your death, the life insurance company will pay a death benefit to your beneficiary. How much coverage you need varies by individual and is usually calculated by determining your end-of-life expenses and remaining debt. It’s important to keep in mind the higher the death benefit, the higher the premium. Be sure to carefully examine your financial situation to ensure you stay within budget.
Additional coverage options: Life insurance riders are additional benefits added to a policy. Some insurance riders may come at no cost to you, while others may increase your premium. An example of a life insurance rider is an accelerated death benefit. With this rider, the policy owner may receive a portion of their death benefit before death. Accelerated death benefits can be used for any reason, but terminally ill individuals will often use them to cover medical expenses.
Will My Life Insurance Quote Match My Premium?
When you request a life insurance quote, you are asked a few basic questions about your age, gender, and health status. This information is used to give you a ballpark estimate of what a life insurance plan will cost you. Until you go through the underwriting process, this estimate isn’t guaranteed.
You may submit to a health exam during the underwriting process, and the insurance company may request your prescription history and driving record. It could be discovered that you have a history of high cholesterol or reckless driving, and your premiums will reflect that.
Are Life Insurance Premiums Tax Deductible?
Typically, no, life insurance premiums are not tax-deductible. On the other hand, the death benefit may be income-tax-free for your beneficiary. It’s also worth mentioning that any interest gained on the policy may be taxed as income for your beneficiary.
Where Can I Find a Life Insurance Policy With Affordable Premiums at My Age?
Americo Senior Life is a trusted source for helping seniors obtain affordable life insurance. With one of our policies, you can obtain lifetime coverage with premiums that never increase. Protect your family with a whole life insurance plan from Americo. Go online for a free quote today.