When it comes to buying life insurance, your age really does make a difference. Because life insurance is based on age and health, your age is actually one of the big determining factors in how much the base premium of your policy will be. The younger you are, the lower your premium will be.
Before we discuss how much your age makes a difference in applying for a term life insurance policy, keep this in mind: your current age is not necessarily the age the insurance company is going by. While some carriers use your current age, others use what’s called your “insurance age,” which means whichever age you are closest to.
If you are 21 years and 10 months old, you are actually viewed as a 22 year old. This is because life insurance is based on the law of large numbers, so for accuracy purposes, you are viewed as being closest to your 22nd birthday.
As I mentioned, age is one of the deciding factors of your premium. When you apply for life insurance, the insurance company first puts you into a bracket with all the other people your same age and gender. This is because insurance is largely statistics, and your life expectancy is tied directly to your gender, age, and current health conditions.
For example, if you are a 35 year old male non-smoker, you are immediately categorized with all other 35 year old males who don’t smoke, and the insurance company has statistics projecting your life expectancy to, say, 84 years old. This does not mean they are expecting you to die at 84. It means of all the males who were categorized in your age bracket at 35, exactly half are expected to be living, and half to be deceased.
When calculating your insurance premium, as a 35 year old male with a life expectancy of 84, the insurance company is estimating a 50% chance you’ll be dead in 49 years. If you were 40 in the same condition, you would have an estimated 44 years remaining. As you can see, the older you are, the greater the risk you are to the insurance company as your years remaining decreases.
As your risk goes up, so does your premium.
So the younger you are, the more years the insurance company thinks you’ll live, and the lower your base premium will be. This, of course, also depends on your current health. Even if you are young, you may pay a higher premium if you already have high cholesterol, high blood pressure, or diabetes.
The next big determining factor in assessing the premium of your term insurance policy is the duration of term you choose. You have options of one year renewable, 5 year term, 10 year term, etc. all the way to up 40 years with some companies. Your premium is determined by averaging the premium from all the different ages throughout the duration you picked.
So if you are a 35 year old male again, and you choose a 20 year term policy, the insurance company is going to average their risk between a 35 year old male and a 55 year old male, and all the ages in between.
The longer the duration, the higher the premium.
So the longer you choose to have a level premium, the greater the premium amount is going to be. This is another reason your age makes a difference. If you want a 30 year term policy to cover a new mortgage, but are 50 years old, your policy premium is going to be based on all the averages of a 50 year old to an 80 year old! But if you are 40 looking to do the same thing, you’re risk is now only viewed as high as a 70 year old.
If you choose to have riders attached to your life insurance policy, your age makes a difference once again. Let’s look at the waiver of premium rider, for example.
Waiver of premium protects you in the case of a disability, and will pay to continue your policy while you are unable to work.
If you are 25 years old and add this rider, it will be very inexpensive from most carriers. This is because your body is young, full of energy, and well constructed. But as you age, so does your body, and it begins breaking down over time increasing the risk of disability resulting from things such as arthritis, osteoporosis, or other diseases which occur naturally with age.
So if you buy life insurance at age 50, not only will your base premium be much higher because your age is much older, but your additional premium for protection against disability will be much higher as well, because the statistical data in reference to injury is far, far greater.
Waiver of premium usually has an end date as well, such as 65. When you reach age 65, the rider simply is no longer active and your premium will go down proportionately. The chances of becoming disabled after 65 because of the physical age of the body are far greater than even 50.
Age will make a difference when buying a term life insurance policy, as well as a whole life insurance policy. The increase in premiums is slight when you’re younger, but increases at an exponential rate as you get closer and closer to your life expectancy. This means your premiums act in the same way. Save yourself money by buying your life insurance as young as possible.