As an independent life insurance broker, I hear from potential clients ask the question, how much does life insurance cost? I really wish there was a simple answer to the question but there is not. It is like asking a realtor how much does a house cost? The answer will vary from $30,000 to $30 million depending on the house you are talking about. The same is true with life insurance; there are a lot of factors to consider in determining a price better known as a premium quote. Let’s break it into categories.
The first set of criteria to determine is the need for life insurance. If you died today how your loved ones would be affected? Do they count on your income? Would they have debt like a mortgage, car payment, credit cards, etc.? Would they have money saved for the children’s education? Could they afford your final expenses like medical bills not covered by health insurance, taxes and fees or funeral expenses? Here is a great way to total up these numbers using life insurance math to determine a face amount needed for the quote of premium.
The next set of criteria needed once you know the face amount or death benefit to be paid to your beneficiary is the type of insurance. There are two basic types of life insurance. The first and most popular is term life insurance. This is life insurance needed to create an instant estate and solve an immediate issue in case of sudden death. These have a time limit of level premium or locking in your rate for a period of time like 5-10-15-20-25-30-35 years regardless of change in health, residence or employment. The second type of life insurance policy is the cash value policy. These are by popular names like whole life and universal life. A whole life policy as the name suggests is designed to lock in your rate for your whole life. For more details please read Life insurance 101.
The next set of criteria needed has to do with you personally. Just to run a quote to get in the ball park of how much life insurance costs the life insurance agent will need the following:
Type of Insurance-Face Amount-Age-Height-Weight-State of Residence-Nicotine Use-Health Status
This information is needed by the agent to get close. The underwriters are going to need even more information.
The last set of criteria is the additional information needed by the underwriting company to determine your individual risk of mortality to set your premium for the face amount and time period you have selected. They will typically send out an independent nurse called a paramed to ask specific health questions of your history. They will collect your height, weight, blood pressure, blood and urine samples and can even collect an EKG strip depending on age and face amount. This specific data helps them determine your risk category for your premium. They will also ask financial questions such as annual earnings and net worth to determine the correct face amount is not too high.
Please understand if a life insurance agent looks at you puzzled when you ask the question how much does life insurance cost, you now have a basic understanding of why the puzzled look. Good luck in finding your best product at your best price to protect the ones you love and that count on you.
“We love life, not because we are used to living but because we are used to loving.”—Friedrich Nietzsche
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Tim Wilhoit is owner/principal of Your Friend 4 Life Insurance Agency in Nashville, TN. He is a family man, father of 3, entrepreneur, insurance agent, life insurance broker, salesman, sales trainer, recruiter, public speaker, blogger and team leader with over 27 years of experience in sales and marketing in the insurance and beverage industries.
Tim: Good post. Let me add this. There is a bigger cost of not having life insurance when the time has arrived. There will be a loss of income during retirement if there is no life insurance guaranteed to be in place after retirement. The loss of income will be caused by the limiting options on the assets remaining because they have more pressure to do more jobs like, retirement income, final expenses, and survivor funding.
Trent, that is an excellent point. Life insurance is still one of the best buys of insurance on the market. It is also the ONLY insurance that is guaranteed to have a claim. We all die someday. Thank you for sharing.
Good post.
I’d venture to say that in many situations, especially where the life to be insured is under 40 the product is “term”, and the face amount being quoted is under $1,000,000 the quotes that are given by agents as well as websites don’t maximize the insurance value per dollar of remium. To put this in other words, the client ends up paying too much for what he is getting.
To illustrate, I’m looking at a female, age 35 nearest and last, standard (“Regular”) health being quoted for $200,000 by one of Canada’s largest and well-known life insurers. The annual premium quoted is $230.00 for 10-year term. Clicking to optimize this quote on LifeGuide reveals that the same person, buying the same insurance product from the same insurer and with no change in underwriting class can get $530,740 in face amount for the same $230.00 annual premium. That, friends, is more than 2.65 times more in face amount without a penny in added premium cost – and without any change to the company, product or underwriting class!
An even larger company quotes $161.04 for $200,000 but quotes the identical premium for $286,033 in face amount.
Another large insurer, owned by an American insurance giant quotes $164.00 for $200,000 in face amount and the identical $164.00 for $285,012 of face amount – again for the same product and with no changes to the demographic or other parameters.
Agents and brokers who are equipped with LifeGuide, therefor, are able to provide optimum value per premium dollar to the client, and can often easily outdo the best quotes on the Internet or on any other software.
Ami, thank you for making my point. I personally use ipipeline and can pull 30 carriers at a time. The premium between #1 and #30 will over double for the exact same person on the exact same product. Most consumers really don’t understand that. Thank you for sharing.
Tim, yes there are premium price differences among the various insurance companies offerings; however, while similar, the compared offerings are not necessarily identical. That is so regardless of the type of product and even with the most basic of all products, the term products. However:
What I was referencing was not just the premium price difference among life insurance companies for similar (but not necessarily identical) products, but the hidden added value that can be revealed by an agent, advisor or broker who is cognisant of that possibility AND is equipped with software that will reveal such opportunities with the SAME product, from the SAME company, under the SAME parameters, and for the SAME applicant in the SAME underwriting classification. Note: Everything is the SAME, except that there is hidden value that nearly always goes unnoticed and unrealized unless the intermediary is both knowledgeable in life insurance AND equipped with LifeGuide.
Per my earlier note:
” To illustrate, I’m looking at a female, age 35 nearest and last, standard (“Regular”) health being quoted for $200,000 by one of Canada’s largest and well-known life insurers. The annual premium quoted is $230.00 for 10-year term. Clicking to optimize this quote on LifeGuide reveals that the same person, buying the same insurance product from the same insurer and with no change in underwriting class can get $530,740 in face amount for the same $230.00 annual premium. That, friends, is more than 2.65 times more in face amount without a penny in added premium cost – and without any change to the company, product or underwriting class!
An even larger company quotes $161.04 for $200,000 but quotes the identical premium for $286,033 in face amount.
Another large insurer, owned by an American insurance giant quotes $164.00 for $200,000 in face amount and the identical $164.00 for $285,012 of face amount – again for the same product and with no changes to the demographic or other parameters.”
Ami, I do understand what you are saying. My point of the blog was not really to compare products and companies as much as educate the consumer that just to receive a quote on life insurance requires some additional information and it is not a static product like a loaf of bread. Life insurance as well as the consumer must be blended or underwritten to come to an accurate premium. I do appreciate you sharing your system. Email me some additional information. tim@yourfriend4life.com
While I enjoy and agree with many of your posts, the cost of life insurance does NOT vary in the market like in your “how much does a house cost?” analogy. Instead, the cost of life insurance is set by each insurer and must be approved in advance by each respective department of insurance. As such, there IS a definitive answer to the question “how much does life insurance cost?” While there are a number of pricing factors that determine cost in each client situation as you mention (e.g., coverage duration=type of insurance, face amount, age, health-risk class, state of residence, nicotine use, etc.), there IS a definitive answer to the question “how much does (or should) life insurance cost? for each such client situation.
In addition, while cost/price may be ascertained by a premium quote for term insurance, cost/price is NOT ascertainable by a premium quote for any form of life insurance that includes cash value (e.g., most forms of UL, VL and WL). The costs in all such forms of life insurance is NOT the premium (any more than the cost of an IRA is the $2,000 contribution to the IRA), and instead is the cost of insurance charges (COIs), fixed administration expenses (FAEs), cash-value-based “wrap fees” (e.g., VUL M&Es), and premium loads deducted from premiums and cash values. In fact, comparing “premium quotes” for non-guaranteed products is “strictly prohibited” by the chief regulatory body of the financial services industry because such comparisons can be “misleading” and found to be “fundamentally inappropriate” by a study published by the chief actuarial body of the life insurance industry.
I hope I have not offended you here. As I say, I enjoy enjoy and agree with many of your posts, and would welcome writing something together to dispel the myth that there is no simply answer to the question “how much does (or should) life insurance cost? Drop me a note to bflagg@veralytic.com if you’d also be interested in writing something together.
Barry D. Flagg, CFP®, CLU, ChFC, GFS®
President, Founder & Inventor
Veralytic
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Barry, trust me no offense taken. I really wasn’t trying to compare products and companies to houses. It was more of making a point to the consumer than an analogy. I understand how premiums are set and approved by state DOIs. The point of this blog was for a consumer asking the question, a lot, “how much is life insurance?” There are several factors an agent must have to even give a ballpark quote.
I appreciate that you like my articles and I hope you will continue reading them. You are 100% correct there is no simple answer to “how much is life insurance” which was really the point I was trying to get across but obviously failed. I would like to collaborate on an article with you. Shoot me an email of what you have in mind. tim@yourfriend4life.com
Thank you again for sharing!
With investments, you put in the capital and you get paid the interest. With life insurance, you put in the interest and you or your beneficiary/ies are paid the capital.
Duke, a very brilliant way to say the difference in investments and life insurance. Thank you for sharing that!
Tim, the point that I was illustrating for you is that there is often value that is being paid for by the stated premium but which the consumer ends up not receiving either because the agent is not cognizant of the matter or (s)he is just not equipped with the necessary software tools to reveal that value.
As illustrated earlier:
“To illustrate, I’m looking at a female, age 35 nearest and last, standard (“Regular”) health being quoted for $200,000 by one of Canada’s largest and well-known life insurers. The annual premium quoted is $230.00 for 10-year term. Clicking to optimize this quote on LifeGuide reveals that the same person, buying the same insurance product from the same insurer and with no change in underwriting class can get $530,740 in face amount for the same $230.00 annual premium. That, friends, is more than 2.65 times more in face amount without a penny in added premium cost – and without any change to the company, product or underwriting class!
An even larger company quotes $161.04 for $200,000 but quotes the identical premium for $286,033 in face amount.
Another large insurer, owned by an American insurance giant quotes $164.00 for $200,000 in face amount and the identical $164.00 for $285,012 of face amount – again for the same product and with no changes to the demographic or other parameters. ”
Another large insurer, owned by an American insurance giant quotes $164.00 for $200,000 in face amount and the identical $164.00 for $285,012 of face amount – again for the same product and with no changes to the demographic or other parameters. ”
Note that the above are all involving the SAME product from the SAME carrier, under the SAME underwriting classification, for the SAME person, and SAME premium payment mode …and at the SAME premium figure.
When someone asks how much does insurance cost one much ask, compared to what?
I just did a webinar on Section 162 Executive Bonus plans and was able to show that in a permanent policy (IUL) with cash value the insurances costs are less then what a brokerage account would charge to manage the money. The projected Cash Value at age 67 was around $600K, the cost of insurance and policy fees that year was a total of $2,400. If you took that same $600K and put it into a managed money brokerage account you can expect to pay 1% to 3% or more in fees and expenses. At 1.5% that would be $9K and the $9K doesn’t include any insurance at all.
So how much does the insurance cost? No insurance cost $9K and real insurance only cost $2,400. If the insurance were to cost twice as much, it still beats the cost of No insurance. Unfortunately people want to dwell on the cost of insurance when compared to other investment vehicles which don’t even have insurance. You have to look at the entire cost structure of a product whether it be life insurance or a mutual fund to make a correct decision since there are no free products out there except the almighty mattress which due to inflation is a guaranteed loser.
Louis, I am with you. We too are working a large section 162 case and it is an awesome program. However the executives don’t ask “how much is the life insurance?” because they understand the deal. My blog was more for the average hard working American that doesn’t live in our world and really has no idea how life insurance risk is calculated. You are spot on with the cost of not having life insurance is WAAAAYYYYY more expensive than those affordable monthly premiums for having life insurance. I appreciate you sharing, especially the162 stuff.
I appreciate the comments here. I so agree. Also, when clients complain about cost they must consider the value of what they are buying. Whether they are paying for insurance or paying a funds manager, bottom line is, what can you get for cheap that’s better?
The lack of financial knowledge people have contributes to the lack of saving and investing because they think it’s too expensive. Everyone wants a product with a fast high return, next to nothing fees, and a mechanism that cooks your breakfast. Ha! Doesn’t exist. For some reason many middle class people think that there’s always something better out there, when there really isn’t. This lack of financial knowledge creates a culture of non savers and non investors- debt and financial failure.
How much should – say – $1,000,000 of future death benefit cost today?
Even if we assume a date of death and discount the $1,000,000 by a reasonable factor – say 6%, we would arrive at a present value of that $1,000,000. So long as you were happy to earn 6% on your money – the value proposition would be quite fair.
But where life insurance has its real value is that we can buy it even cheaper than that!
Why? Because a lapse rate is baked into the pricing – meaning we can buy $1,000,000 of benefit for a fraction of it’s present value – which is a financial bargain we won’t find anywhere else in the financial world.
Cassandra and Jay, I believe you are both spot on with consumer concerns of cost. No one wants to think about death, but other than taxes it is our only guarantee. The people that “can’t afford it” have 60′ TVs, watercraft and a large car payment they “can’t afford” either but it did not stop them. Jay I love the $1 million analogy, very clever. Thank you both for sharing.
It all depends on what they can health qualify for ?
Roslind, there is much more to it than just health, I spelled out all the things an agent needs to know to be accurate with a quote in my article.
That is true and I liked what you wrote. But my, in my experience Especially in the senior market , health is a large qualifier zany the next is money . I hope that this helps answer what I wrote better .
Roslind, That certainly clarifies it better. The senior market is a tough market for life insurance. Even if they are healthy, the premiums are not cheap. Thank you for sharing those comments, I appreciate it.