Life Insurance Premiums

Fun fact, if you were to use the word PREMIUM today in a sentence, it would mean to everyone who heard it “of excellent quality”. Premium tires, premium gas, premium saltine crackers. However 100 years ago the word premium was understood very differently. Premium is derived from a Latin word that meant reward or prize. Which is what it initially was supposed to be for life insurance premiums. It was supposed to be a reward or prize you paid for now and could capitalize on later.

“If we call it a ‘premium’ everyone will want to pay it!”
– Probably somebody from the 1880s marketing team

1. What Are Life Insurance Premiums?

Life insurance premiums are the regular payments you make to the insurance company to maintain your coverage. It’s similar to paying a subscription fee for the security and benefits that life insurance offers. Premiums can be paid monthly, annually, or on another schedule depending on the terms of your policy.

2. Factors Influencing Life Insurance Premiums

Several factors determine the cost of your life insurance premiums:

Age: Younger individuals generally pay lower premiums since they are considered lower risk.
Health: Your health status plays a significant role. A medical examination might be required, and individuals with pre-existing conditions could pay higher premiums.
Gender: Statistically, women tend to live longer and pay lower premiums than men.
Smoking and Lifestyle Habits: Smokers often pay higher premiums due to the associated health risks. Dangerous hobbies (swimming with the sharks) or an unhealthy lifestyle (competitive hotdog eating) can also impact your premiums.
Coverage Amount: Someone who needs a million in death benefit is going to pay more than someone who needs one hundred thousand. The higher the coverage amount, the higher the premiums.
Type of Policy: Term life insurance usually has lower initial premiums than permanent life insurance, but they increase if/when the term is renewed. Permanent policies tend to have higher initial premiums but offer lifelong coverage and a cash value component.
Policy Duration: Longer policy terms often mean higher premiums when it comes to temporary, or term insurance. For permanent insurance, this will fluctuate a bit depending the type, company, and structure.

3. Term vs. Permanent Life Insurance Premiums

Term Life Insurance: This type of policy offers coverage for a specific period, such as 10, 20, or 30 years. Premiums are typically lower initially increases when the term is renewed. Younger individuals seeking affordable coverage often opt for term life insurance.
Permanent Life Insurance: Permanent policies, like whole life and universal life insurance, provide coverage for your entire life and often come with a cash value component. Premiums for permanent insurance tend to be higher initially but can remain consistent throughout the life of the policy.

4. Insurance Premium Payment Options

Life insurance premiums can be paid in various ways:

Annual: Paying once a year might offer discounts compared to more frequent payments.
Semi-Annual: Payments every six months can be more manageable than an annual lump sum.
Monthly: Monthly payments offer convenience but might come with slightly higher total costs due to administrative fees.

A Premium is a Reward:

A premium is a reward you pay to yourselves in the future. This feels less true with term insurance, for if you only plan to have it through a certain age, then not die until after it expires, it might seem silly to call it a reward. But for every instance its truly needed, the reward is you were forward thinking enough to provide a safety net for people you love.

In permanent life insurance you will usually see a cash value aspect. Cash value is the premiums you pay, minus the expenses the insurance company needs to use to keep your money safe. The prize is, if you have an appropriately designed policy, your cash value will grow to exceed the premiums you have paid, and that you will have access to a lot of it tax free.

A policy properly designed for cash value growth should break even with insurance premiums paid within about 4-6 years for a young and healthy person. It will tend to take a bit longer to break even for those that are older or less healthy. If you are interested in seeing optimized policies for your situation, book a meeting with us.

A milkshake and french fry date to make some PREMIUM memories