What are life insurance premiums?
Life insurance premiums are the payments you make to a life insurance company to keep your policy active. If you don't pay the premium, your policy will lapse and you'll no longer be covered. You can pay premiums monthly, yearly, or according to the schedule your insurer sets. The amount you pay depends on factors like your age, health, the type of policy you choose, and the coverage amount. As long as you pay your premiums, the insurer provides a payout, called a death benefit, to your loved ones after you pass away.
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Key takeaways
Life insurance premiums are regular payments you make to keep your policy active
The amount you pay depends on several factors, like age, health, type of policy, and the coverage you choose
How do life insurance premiums work?
You pay life insurance premiums to keep your policy active. When you pass away, the life insurance company gives your beneficiaries a payout, called a death benefit. Beneficiaries can use the death benefit to help pay for expenses like funeral costs, outstanding debt, and more.
Typically, you pay your premiums on a monthly, quarterly, semi-annual, or annual basis for the life of the policy. Premium payments generally remain constant throughout the life of your policy, depending on what life insurance product you have. Insurers may offer flexible payment options that allow you to choose when you pay. Depending on your insurance company, making annual payments may help you save money compared to monthly payments. Paying monthly premiums may be more manageable for some budgets.
What happens if you don't pay your premiums?
If you stop paying your policy's premiums and let the contractual grace period expire, your life insurance lapses. This means your coverage ends and your beneficiaries receive no death benefit. Depending on your policy, you may reinstate it by paying your missed premiums and meeting certain requirements, like proving your health hasn't changed.
How are life insurance premiums calculated?
Insurers calculate life insurance premiums based on a range of factors that help them assess how risky you may or may not be to insure. These factors may influence how much life insurance costs:
Age
Generally, younger people pay less for life insurance than older people because they're less likely to have health problems. For example, a healthy 20-year-old male may pay $16.10 per month for a $250,000 term life insurance policy, while a 60-year-old male may pay $77.43 per month for the same coverage.*
Gender
Women typically pay less than men for life insurance due to longer average lifespans. Women are less likely than men to have dangerous jobs or lifestyles, which also lowers their insurance risk. For example, a 30-year-old female may pay $15.01 per month for a $250,000 term life insurance policy compared to $16.10 per month for a male of the same age.*
Health
Insurers look at things like height, weight, medical history, and any chronic conditions to help calculate your life insurance premium. A person with diabetes or high blood pressure, for example, may pay significantly more than a healthy individual.
Tobacco use
Smokers pay higher premiums due to health risks like cancer and heart disease. A smoker may pay double or more compared to a non-smoker. Learn more about life insurance for smokers.
Hobbies
High-risk hobbies like scuba diving or skydiving can increase premiums. Someone who skydives regularly may pay more than someone without risky hobbies. The activities that insurers classify as "risky" can differ from one company to another.
Occupation
If you have a dangerous job, like firefighting or construction, you might pay higher premiums. For example, a construction worker may pay more than an office worker for the same coverage.
Criminal history
Insurers may check to see if you have a criminal record, including convictions for DUIs or felonies. Certain offenses may result in higher premiums or even disqualify you from coverage, depending on the insurer's policies. Learn more about life insurance for those with a felony.
Financial history
Credit score alone doesn't impact your insurability. But insurers may look to see if you have bankruptcies or long periods of unemployment. These could signal potential risk and might lead to higher premiums or make getting coverage difficult.
Coverage amount
Higher coverage amounts result in higher premiums. A $250,000 policy costs less than a $500,000 policy.
Policy type
The difference between a term and permanent life insurance policy lies in the length of coverage and the features, which affect how much premiums cost. Term life insurance is typically less expensive because it provides coverage for a set period, like 10, 20, or 30 years and doesn't include a cash value component.
Whole life insurance costs more than term because it lasts a lifetime and includes a cash value component. Universal life or final expense insurance, which are specialized policies, may have unique features that influence cost — like flexible payments or customized coverage.
Understanding these factors — from age and gender to policy type and coverage amount — can help you compare average life insurance premiums across different companies and policies to find the right one for your needs.
Pro tip:
Progressive partners with eFinancial to offer a range of life insurance options. According to eFinancial, the cost of a 10-year, $250,000 term life insurance policy is typically between $24 and $31 per month for a healthy 20 to 40-year-old.†
Are life insurance premiums tax-deductible?
No, in most cases, life insurance premiums are not tax-deductible for individuals. If you purchased life insurance to provide financial security for your loved ones, your premiums are considered a personal expense and can't be deducted from your income taxes, according to Internal Revenue Service (IRS) guidance. However, some types of life insurance, like whole life insurance, can provide tax-deferred cash value growth. Your tax advisor can help you understand the tax implications of your specific situation.
The IRS generally doesn't tax death benefits as federal income. When you pass away and your beneficiaries receive a payout, they won't need to pay taxes on it.
How to compare life insurance premiums
Consider these key steps to find the life insurance policy that best fits your needs and budget:
Determine your coverage needs:
Use a life insurance calculator to decide how much coverage you need based on your income, debts, mortgage, and family expenses.
Choose a policy type:
Compare term life insurance (affordable, temporary coverage) versus whole life insurance (more expensive, lifelong coverage with cash value).
Shop around for quotes:
Request quotes from multiple insurers to compare premiums for the same policy type and coverage amount.
Evaluate factors that affect premiums:
Compare how insurers assess your age, health, tobacco use, hobbies, and more. One insurer may offer lower rates for non-smokers while another may specialize in affordable policies for high-risk occupations.
Review additional features:
Check for riders that may increase premiums but add valuable coverage. Find out if the policy offers flexibility, like converting a term life policy to a whole life policy later.
Understand payment terms:
Compare monthly versus annual payment options. Some insurers may offer a discount for paying premiums annually.
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