Term life insurance prices can differ considerably between life
One of the main reasons for a disparity can be the operational efficiency of the company...or lack of it.
Term life prices also differ because of the type and duration of the policies themselves.
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Let us look at some of these policies. The longer the period for which you can keep a
life insurance policy
the more it is likely to cost. Anyone who has bought any
term life insurance
know that a
30 year level term policy
costs more than a
20 year level term policy, which in turn costs more than a
10 year level term policy.
Why do term life insurance premiums vary depending on time? You are in good health when you apply, you are the same age, the amount of insurance that the company will have to pay on your death is the same...
The reason for the difference in term life insurance prices is
simply that the longer the time that the policy lasts the longer the
company is on the hook. When the life insurance company sells you a
policy they are betting you that you will not die in the specified term
You die, your family wins, the insurance company loses. So if you want a 20 year term policy the price has to be higher than that of a 10 year term policy...
12 or 15 years down the line you may not be in as good health as you are now. If you had a 10 year term policy that would possibly be over and done with...or you would have converted it to a more expensive policy like a universal life insurance policy. If you owned a 20 year term policy the insurance company would still be covering you with that policy.
There are two other types of term policies that we need to consider when we look at term life insurance prices. They are the
yearly renewable term policy
decreasing term policy.
The yearly renewable term life insurance policy is probably the most
intelligently designed life insurance policy...especially from the point
of view of the
life insurance company.
You should look at it as a one year term policy that the company allows you to renew each year. But you get older each year so on renewal term life insurance prices increase for the same policy. This may seem to make a lot of sense but after a few years you will notice that the price becomes so high that you may not consider owning this policy worth the dollars you pay.
We should also examine the term life insurance prices of the
decreasing term policy. This policy was designed to pay off the mortgage
balance upon the policy owner's death. The death benefit decreases in a
uniformed manner over the years. The premiums are fairly
Because the death benefit is higher in the initial years one would think the premiums should be higher. Consideration should also be given to the fact that nearing the end of the policy the death benefit is significantly lower...
The premiums are level because another very important factor
comes into play. When the policy is initially purchased you are much
younger than at the end of your policy...or end of the mortgage.
So your young age offsets the cost of the large amount of risk initially assumed by the life insurance company. The negligible risk in the final years of the policy costs more because of your older age.
These are some of the reasons why term life insurance prices differ.
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I recently did some research on the development of the 30 year term insurance policy over the years. What I learned was quite interesting.
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