Term Life Insurance Price

Why Term Life Premiums Differ

Let us take a look at term life insurance price. They can differ considerably.

Why would term life premiums be lower for one term policy than they are for another term plan?

Why would term insurance cost less than the premium you would pay for permanent plans like whole life or universal life?

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The people who design term policies try to make these term life insurance premiums as pure as possible. They attempt to include limited loads in the term life insurance price as is possible.

The yearly renewable term policy is the least costly because it is life insurance for a very short period of time. Yearly renewable term is a one year term policy which you have the option of renewing each year at a higher premium. You don't have to qualify each year for the policy.

On the other hand, the 30 year term policy costs a lot more than the yearly renewable term policy. This policy costs more because it is for a long period of time.

Once the life insurance company approves the policy they are on the hook, they cannot take it away from you. At any time in the 30 year period, if you should die they will have to pay the face amount of the policy to your loved ones.

What the actuaries do with the 30 year term life insurance policy is to average out the costs over the 30 year period and charge you a level premium for the entire period. To put it another way the 30 year term policy is front end loaded. You are paying more in the first year that the mortality tables suggest you should pay.

If, however, you should die in the 25th year you would have paid much less for your policy, for that year, than the mortality tables suggest you should pay. Remember though that they have collected premiums for 24 years and you did not die.

As you can see this is the reason for the differences in term life insurance price.

Why The Differences Between Term And Whole Life

Based on the previous explanation you can see that whole life insurance would cost more because this policy can be kept up to age 100. After averaging out the premium costs they arrive at a whole life premium.

You are paying considerably more than you should than you should from the first year. The life insurance companies figure that people will not buy this policy because the premium is too high. Here is what they do. Let us say you get to the end of your second year owning the policy.

They look back and say "this person did not die so let us return the unused premium", that is the difference between the pure insurance premium costs and the actual whole life premium. They call this a cash value. In addition they build into the policy a guaranteed interest rate which they pay on top of your cash value.

They look back each year that you don't die and do the same thing. In addition they pay a dividend on top of your cash value if the company does well. Dividends are not guaranteed but there are life insurance companies that have paid dividends every year for over 100 years.

Term Life And Universal Life Cost Differences

Universal life is term insurance based so the term life insurance price explanation would apply. As there is a saving attached to universal life the difference between the term premium cost and your actual outlay would depend on how much you decide you want to save.

As you can see there are valid reasons for the differences between life insurance premium costs whether you are looking at a term life insurance price or permanent life insurance price.

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