What is life insurance?
A life insurance policy is a contract between you and an insurance company. In exchange for regular payments, called insurance premiums, the insurer pays out money after you die. This money goes to the people you choose as beneficiaries — usually children, a spouse or other family members.
A life insurance policy can be an important safety net if anyone depends on you financially. Beneficiaries can use the money to repay debts, replace your income or provide funds for future expenses like college tuition.
Top reasons to get life insurance
The main purpose of life insurance is to replace your income. However, there are other motivations to buy coverage. Here are five top reasons people get life insurance policies.
- Using burial insurance to cover final expenses.
- Using life insurance to replace your income.
- Using life insurance to leave an inheritance.
- Using life insurance to pay off debt.
- Buying life insurance as an investment.
Types of life insurance policies
The two main types of life insurance are term and permanent. Term life policies cover you for only a set period of time, such as 10 or 20 years, while permanent life insurance can last your entire life.
What is the best life insurance policy for me?
To help you decide which type of life insurance policy is best for you, first ask yourself these three questions:
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How much can I afford to spend every month? It’s important to find a policy that fits within your budget. If you miss payments, the insurer may cancel your policy, leaving your beneficiaries without a payout. Term life is typically cheaper than permanent life insurance, and larger coverage amounts typically cost more than smaller ones. So, if your budget is tight, a term life policy may be a good fit.
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How long do I want the policy to last? If you need a policy to cover only a set period of time, consider term life. However, if you need a policy that’s likely to last your entire life, explore permanent coverage like whole life.
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What financial obligation is the death benefit covering? If you’re getting life insurance to cover burial expenses, you’ll likely need a small whole life policy because it typically offers lifelong coverage. But if you want a policy to replace your income during your working years, a 20-year or 30-year term life policy may be a better fit.
How much does a life insurance policy cost?
Life insurance is cheaper than you might think. The average life insurance rate for a 40-year-old in excellent health can be as little as $26 a month for a 20-year term life policy with $500,000 in coverage, according to Quotacy, a life insurance brokerage.
Rates can vary among insurers — sometimes significantly — so it’s a good idea to compare life insurance quotes from several companies before you buy.
Average cost of a term life insurance policy: November 2022
Here are average annual life insurance rates for a $500,000, 20-year term life insurance policy for the healthiest applicants.
Age
Average annual rate for men
Average annual rate for women
30
$224
$189
40
$335
$284
50
$826
$645
60
$2,362
$1,670
70
$9,297
$8,204
Source: Quotacy. Lowest three rates for each age and risk class averaged. Data valid as of October 19, 2022.
Average cost of a whole life insurance policy: November 2022
Here are average annual life insurance rates for a $500,000 whole life insurance policy for the healthiest applicants.
Age
Average annual rate for men
Average annual rate for women
30
$4,690
$4,143
40
$6,997
$6,122
50
$10,800
$9,508
60
$17,735
$15,517
70
$30,462
$27,398
Source: Quotacy. Lowest three rates for each age and risk class averaged. Data valid as of October 19, 2022.
Life insurance premiums are typically based on your life expectancy, which equates to how likely it is the insurer will have to pay out a claim. The higher the chance of paying a claim, the higher the premiums.
To estimate your life expectancy, each life insurance company weighs factors like your health, family health history, lifestyle and driving record.
“Two of the main factors that affect your life insurance premium are your age and health.”
Two of the main factors that affect your life insurance premium are your age and health. So, the younger and healthier you are when you apply for coverage, the better your life insurance rate is likely to be.
You can still get life insurance if you have a medical condition, but insurers vary in how they view preexisting conditions, and prices for the same condition vary between insurers. Some policies, such as simplified issue and guaranteed issue life insurance, don’t require an exam. These types of policies are typically called no medical exam life insurance. However, because the insurer can’t estimate your life expectancy as accurately with limited information about you, the rates for these types of policies can be higher.