Average Cost of Life Insurance by Age, Term & Coverage
A 20-year term life insurance policy costs an average of more than $147 a month. Your rate may vary based on your policy, age and health,... Read More
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Life insurance can help protect your family financially if anything happens to you, but it’s important to make sure you’re not overpaying for the coverage you need.
How does life insurance work?
Life insurance lets you leave a sum of money to someone you choose after you pass away.
Most people buy life insurance so that their dependents can pay for the funeral and any other end-of-life expenses. It's also common to buy a policy to help children pay for college or help a spouse afford the bills.
Here's what makes up a life insurance policy:
- Term: This is the length of time the policy lasts. Some policies only cover you for a specific time period, like 10 or 20 years. These are called "term policies." Some policies, like whole life and universal life, cover you for the rest of your life no matter how long it is. These are called "permanent policies."
- Death benefit: This is the amount of money that would be paid to the beneficiary if you passed away. Sometimes, this is called the "face value" of the policy.
- Premiums: This is the monthly or annual payment that you give to the insurance company to keep the life insurance policy active. If you miss a payment or decide not to pay, the life insurance policy would be canceled.
How to calculate your life insurance needs
The amount and type of life insurance you need depends on what you want the payout to do for your loved ones.
For example, if you have no debt and your family wouldn't need much financial help if you pass away, you might decide to skip life insurance altogether. Or you could choose to get a policy just to leave a financial gift to your family, friends or a charity.
But if you have a spouse who would need help paying the mortgage or children who would need money to go to college, you might want to get a policy with a bigger payout.
To decide how much life insurance you need, start by adding up your current and future financial obligations. This can include expenses such as:
- Future salaries
- Mortgage balance
- Debts
- College costs
- Funeral costs
After you have figured out your financial situation, add up your current assets such as savings and college funds. Finally, subtract your current assets from the obligations. That gets you to a target amount for how much life insurance you might need.
Keep in mind that this is a rough estimate for coverage, and it may be useful to purchase slightly more life insurance to compensate for unexpected financial situations that your dependents might face.
Types of life insurance
Life insurance companies will typically offer two different types of life insurance: term life insurance and permanent life insurance.
A term policy lasts for a set period of time before expiring while permanent plans stay active for your entire life. Some permanent life insurance policies also have a cash value component that grows as you make premium payments.
Term life insurance | Permanent life insurance | |
|---|---|---|
| Period of coverage | Specified term, usually one to 30 years | Lifelong |
| Cash value | No | Yes |
| Average monthly premium | Cheap | Expensive |
Depending on your situation and what the purpose of your life insurance is, the type of life insurance that you need will change.
For example, if you are looking for a cheap policy to cover future financial obligations like college tuition, then choosing a term life insurance policy with a death benefit that matches the total tuition may be the best option. On the other hand, say you have Type 1 diabetes and have had problems with getting approved for life insurance. In this case, a permanent policy like guaranteed acceptance life insurance may be a better option for coverage.
Average cost of life insurance policies
The cost of your life insurance policy depends on a variety of factors including your health, age, and occupation. However, the biggest factor is whether or not you smoke.
Smokers have an average cost of life insurance that is 306% higher when compared to a nonsmoker.
Average Cost of Life Insurance for Non-Smokers vs Smokers
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About the Author
Cate Deventer
Senior Writer
Cate Deventer is a Senior Writer who specializes in health insurance, Medicare, auto and home insurance. She's been a licensed insurance agent since 2011.
She started her insurance career working as a customer service agent for State Farm. She later moved to an independent agency, where she worked with several insurance companies and hundreds of clients. She quoted policies, filed claims and answered insurance questions. In 2021, she pivoted her career and began writing about insurance for Bankrate. She moved to ValuePenguin in 2023 and began writing about health insurance and Medicare.
Cate has a passion for helping readers choose insurance to fit their needs. She enjoys knowing that her research and knowledge help people choose insurance products that make a positive difference in their lives.
How insurance helped Cate
Cate used her health insurance knowledge to navigate a surgery in 2023. Understanding how her policy worked let her focus on recovery instead of worrying about bills.
Expertise
- Health insurance
- Medicare & Medicaid
- Auto insurance
- Home insurance
- Life insurance
Credentials
- Licensed Life, Accident & Health Insurance Agent
- Licensed Property & Casualty Insurance Agent
Referenced by
- CBS
- NBC
- Wall Street Journal
Education
- BA, Theatre, Purdue University
- BA, English, Indiana University
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