Pas Trusted News – How Much Does Life Insurance Cost?

In this article we’ll focus on cost, with a little time dedicated to reason two further down.

The cost of life insurance varies, person to person. There are some general rules of thumb, like women pay less than men and younger folks pay less than older folks, but there’s more to it than that.

The cost of life insurance depends on three key things: how much life insurance you’re buying, the length of your policy term, and your unique health and lifestyle situation. Let’s take them in turn.

Life insurance is about arranging for a sum of money to be paid to your loved ones if / when you pass away. Generally speaking, the more money you wish to be paid to your loved ones, the more it’ll cost you in premiums each month.

Typically, the shorter your policy term the less your premiums will cost. Life insurance is costed by calculating your risk and the risk of anyone dying gets higher and higher over time. This is why whole of life insurance policies are more expensive and why premiums on a ten year policy will, most likely, be cheaper than premiums on a 25-year policy.

Your health and lifestyle have the biggest bearing on life insurance costs. Put simply, the younger, fitter and healthier you are the less it’ll cost. When you add age, health conditions and a bad habit or two, the costs quickly rise.

Through the application process, life insurers ask a lot of questions to build a picture of your health and lifestyle. They’ll ask about your weight and alcohol intake. Your hobbies and habits. Your health and family history.

If you’re overweight or drink over the government-recommended 14 units of alcohol per week you present a higher risk. If you regularly scuba dive or work on building sites you present a higher risk. If you have a chronic health condition and diabetes in the family you present a higher risk.

To give a sense of how your habits and lifestyle inform life insurance costs: smoking still has the biggest impact on the price of life insurance. Smokers can expect to pay 50% or more than non-smokers for the same policy.

The answer to this is hyper-personal to the individual. Some commentators suggest you should multiply your annual salary by 10, while insurers usually recommend you work it out systematically.

You might add up your debt, including outstanding mortgage. You’d then think about your household’s annual running costs. And you’d then project into the future to work out big expenses on the horizon. Maybe you have kids who want to go to uni. Maybe you want to leave funds for a deposit on your first-born’s house.

You’d factor all these things, and more, to come up with a total. From there, really it’s just a question of budget and how much you want to pay each month.

As an example, the average Briton has £137,934 outstanding on their mortgage and £33,410 of other debt. To clear only debt that’s £170,000. Then there’s running costs, uni fees, funeral costs and so on.

Remember, with you gone your household has to survive indefinitely minus an income so how much life insurance you need is a heavy; sometimes very loaded question.

You may see adverts promoting level term life insurance from £5 per month, and that is possible. But as with anything, the more robust the product, the higher the price.

Level term or sometimes just term life insurance is probably the best-known life insurance product. It’s typically more expensive than other types because it lasts longer and doesn’t lose value over time.

With level term life insurance, you pick a term time (say 15, 20, 25 or more years) and the payout amount your loved ones receive will not change. With family income benefit or decreasing term life insurance, the payout amount reduces over time and this typically reflects in cheaper premiums.

Level term life insurance is typically cheaper than whole of life insurance, as it’s not a question of if but when you will die during your policy’s life. Basically your insurer will have to pay out, eventually, and that is reflected in cost.

Family income benefit is, typically speaking, the cheapest life insurance option.

Sometimes called family life insurance, it pays your loved ones a regular wage instead of a lump sum should you die within the policy term. Some customers think regular small payments would be better than a big and overwhelming lump sum.

Family income benefit might represent the cheaper end of life insurance but it has its drawbacks. Payments won’t be sufficient to clear off big overheads (a mortgage, say), and the total amount payable decreases over time.

For example, let’s say you choose a family income benefit term of 15 years and want your loved ones to receive £25,000 per year. If you die after one year, your loved ones will receive £25,000 for 14 years. That’s £350,000 in total before the policy expires.

But if you die after 14 years, your loved ones will receive £25,000 for just one year before the policy expires. 

Decreasing term life insurance, sometimes known as mortgage life insurance, is typically the next cheapest option in life insurance.

It’s a policy designed to cover the cost of a repayment mortgage which, of course, is reducing all the time. If you get a mortgage for £250,000 over 25 years, you’ll owe £250,000 (plus interest) in year one, but perhaps only £175,000 by year 10. A decreasing term life insurance policy will reduce over time to match the outstanding balance of your mortgage at any given moment.

The decreasing total makes this a cheaper option, but bear in mind that only the value of the mortgage is covered – there’s no extra on top.

In the intro we said there were three key reasons Britons shun life insurance: cost, fears about insurer payouts, and the topic being too grim.

We’ve covered cost, and the topic is a bit grim, but we can address the issue of whether life insurers pay out or not.

Claims data is tracked by the Association of British Insurers and has been for a long time. In a nutshell, insurers pay out 98% of the time and have maintained this same standard for several years.

The primary reason claims are not paid is that customers have lied, misled, or failed to disclose something in their life insurance application that might have changed the insurer’s calculations or decisioning.

U.S. News & World Report (U.S. News) prepared this content about insurance companies for general informational purposes only. Neither U.S. News nor the individual writers of this content are licensed to sell or advise on insurance products. Some coverages, discounts, and features may not be available in all geographic locations. For more information about any of the companies or products profiled herein, or to inquire about the purchase of insurance, please contact the insurance company, an insurance agent, or a financial advisor. This content is not, and should not be considered to be, a recommendation to life insurance products generally or an endorsement of a particular insurer or product. Any rates listed are for illustrative purposes only. You should contact the insurance company or insurance agent directly for applicable quotes.