Life Insurance Premiums

Why Life Insurance Costs Differ

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Sometimes there are very good reasons for the differences between life insurance premiums. Life insurance companies have long learned that charging more than is necessary is a futile exercise. The lower they can make the premium costs the more profit they will make. They make it on the volume.

There are, however, good and legitimate reasons for higher premiums in some cases. You should appreciate that life insurance will cost more as you get older. The older you are the more it costs. Incidentally, that is why you should buy as much as you can while you are young and in good health.

Another good reason for higher premiums is the duration that the company carries the risk. The longer the life insurance company is committed the higher the premium. If you buy a 5 year term policy for $1,000,000 the premium will be very low.

If, on the other hand, you buy a 20 year term policy you will pay a much higher premium. The older you are the more life insurance costs. You buy your policy at age 32, when you get to age 52 the life insurance company may still be carrying the risk. If you die anywhere between age 42 and 52 the company is obligated to pay $1,000,000.

On the other hand, the risk is only carried for 5 years if you own a 5 year term policy. At the end of the 5 year period that is the end of it.

Consider whole life insurance which covers you until age 100. The premiums for this policy is always higher than term policies simply because the life insurance companies carry the risk to age 100. If you should die anywhere between your date of purchase and age 100 the life insurance will pay your beneficiaries the full face amount.

Life insurance premiums differ, sometimes vastly, but there are good reasons for the differences more often than not.

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