Life Insurance Premiums: How They Work

Life insurance premium payments ensure your family has financial stability in the event of your death.

Amy Beardsley
Written byAmy Beardsley
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Amy BeardsleyInsurance Writer
  • 3+ years writing about auto, home, and life insurance

  • 7+ years in personal finance and technology

Amy specializes in insurance and technology writing and has a talent for transforming complex topics into easy-to-understand stories.

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Katie Powers
Edited byKatie Powers
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Katie PowersSenior Editor
  • Licensed auto and home insurance agent

  • 3+ years experience in insurance and personal finance editing

Katie uses her knowledge and expertise as a licensed property and casualty agent in Massachusetts to help readers understand the complexities of insurance shopping.

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A life insurance premium is the money you pay to have life insurance coverage. Your premiums work behind the scenes to protect your loved ones financially, no matter what happens to you.

Learn more about how life insurance premiums work, including what they cover, how much coverage costs, and ways to keep premium costs down while retaining the protection your loved ones need.

What is a life insurance premium?

A life insurance premium is the payment you make to keep your policy active and your coverage intact. It’s like a Netflix subscription, but instead of streaming shows, you’re securing your family’s future. If you skip a payment, you risk losing that safety net — and the life insurance company could cancel your policy.

Costs vary, as they’re specific to each person’s situation. It comes down to two key areas:

  • Policy choices: Type of coverage and death benefit amount

  • Personal profile: Your age, health history, job, and hobbies

How life insurance premiums work

When you pay life insurance premiums, you enter into a contract with the insurance company — it’s like an ongoing promise between you and your insurer. You keep up with payments, and the company commits to paying the death benefit to your beneficiaries when the time comes.

When to pay life insurance premiums

You can schedule your premium payments to fit your budget. Many insurers offer options to pay monthly, quarterly (every three months), or annually. Monthly payments can make the cost more manageable, but paying annually may come with a discount.

Choose the timing that works best for your finances, and let your insurer know your preference when you set up your policy.

What benefits do you get for paying a life insurance premium?

Your premium payments lock in three distinct perks: money for your loved ones when you’re gone, steady rates that won’t surprise you, and peace of mind, knowing you’ve helped secure your family’s future. Policy add-ons, also called riders, can customize your coverage, and some policies build cash value over time that you can tap into during your lifetime.

Death benefit

A death benefit is the cash your insurance company pays out when you pass away. All policy types, including term life and permanent life insurance, have a death benefit. Your beneficiaries can use it however they need — for immediate needs, like funeral costs, or long-term expenses, such as mortgage payments and daily living costs. The death benefit is typically tax-free, allowing your family to receive the full amount you planned for them.[1]

Cash value

Permanent life insurance includes a savings account in addition to the death benefit. Part of each premium goes into a cash value account that grows over time. If you need money for things like college tuition or home repairs, you can borrow against the cash value. However, any loans against the cash value reduce the amount of the death benefit.[2]

Optional benefits

Riders are options that let you modify or add features to your policy. Riders increase your coverage costs, but they help tailor your policy to your specific needs.

Common examples include an accelerated death benefits rider, which gives you early access to your death benefit if you become seriously ill, and a waiver of premium rider, which lets you keep your coverage if you can’t pay your premiums due to disability.

Average life insurance premiums

Monthly life insurance premiums range from around $14 to $300 or more. Your age and health affect premiums, but the policy type you select has the most significant effect on pricing. For example, term life policies are typically the most affordable because they don’t include extra features like cash value.

Average premiums for term life insurance

A term life insurance policy keeps things simple and affordable, with lower rates than permanent life insurance policies. A healthy adult may be able to secure $250,000 in coverage for less than the cost of their monthly streaming subscriptions.

Below, you can compare average monthly term life insurance quotes by age, gender, term length, and policy amount.[3]

Age/Gender
Term
Monthly Premium for $250,000 Policy
Monthly Premium for $1 Million Policy
25-year-old woman30 years$14$35
25-year-old man30 years$17$46
45-year-old woman20 years$21$66
45-year-old man20 years$26$84
55-year-old woman10 years$28$90
55-year-old man10 years$37$121
Source: Insurify partner SelectQuote provided these averages based on 10-year, 20-year, and 30-year term policies from one or more of the companies SelectQuote represents. Rates are for men and women in excellent health. Premiums may vary depending on individual health, issuing company, and other factors.

Average premiums for whole life insurance

Whole life insurance costs more because it accrues cash value and lasts your entire lifetime. Premiums for whole life insurance tend to run about five times higher than term life coverage.

Here are the average monthly whole life insurance costs by age, gender, and policy amount.[4]

Age/Gender
Monthly Premium for $250,000 Policy
Monthly Premium for $500,000 Policy
25-year-old man$64$113
25-year-old woman$69$130
45-year-old man$145$265
45-year-old woman$124$219
55-year-old man$209$390
55-year-old woman$178$328
Source: Insurify partner SelectQuote provided these averages based on whole life policies from one or more of the companies SelectQuote represents. Rates are for men and women in excellent health. Premiums may vary depending on individual health, issuing company, and other factors.

Premium costs without a medical exam

Most life insurance companies require a medical exam, but some offer no-exam coverage options. Coverage that doesn’t require a medical exam usually has higher premiums because insurers have less medical history to help them assess risk. Available coverage amounts vary by company. Many insurers cap coverage at $500,000, but some offer up to $2 million without an exam.

How insurance companies determine life insurance premiums

To determine your premium, insurance companies piece together details about you, your health, and the coverage you want. Here are some of the factors that influence premium costs:

  • illustration card https://a.storyblok.com/f/162273/150x150/95fa30ac35/insurify-icons-auto-orange-96x96_005-insurance.svg

    Type of policy

    Term life costs less than permanent life insurance because it expires after a set time and doesn’t have cash value.

  • illustration card https://a.storyblok.com/f/162273/150x150/d4e67f33b5/banking-96x96-yellow_015-dollar.svg

    Death benefit amount

    More coverage means higher premiums.

  • illustration card https://a.storyblok.com/f/162273/150x150/885ead1bff/family-96x96-green_005-grandmother.svg

    Age of insured

    Insurance gets pricier as you age because health risks increase for older policyholders.

  • illustration card https://a.storyblok.com/f/162273/150x150/8aeabb608a/family-96x96-blue_002-girl.svg

    Gender of insured

    Women typically pay less because they live longer than men, on average.

  • illustration card https://a.storyblok.com/f/162273/150x150/f76792136c/medical-services-96x96-yellow_040-clipboard.svg

    Overall health of insured person

    Better overall health means lower premiums.

  • illustration card https://a.storyblok.com/f/162273/150x150/b31c652940/healthcare-and-medical-96x96-blue_009-quit-smoking.svg

    Lifestyle of insured person

    High-risk jobs, hobbies, and habits can increase premiums.

  • illustration card https://a.storyblok.com/f/162273/150x150/f93e5c7ccc/banking-96x96-orange_017-coins.svg

    Optional coverages

    Riders and policy add-ons that offer more protection can increase your premium cost.

Factors that don’t affect life insurance premiums

A few factors that don’t affect your life insurance premiums include marital status, the number of kids you have, and your race. Your occupation only matters if it involves unusual risks, like mining or deep-sea diving.

How insurance companies use life insurance premiums

A large portion of life insurance premiums goes into a fund to pay future death benefits and the insurance company’s operating costs, including processing claims and paying staff. Insurers often invest the rest into assets like government and corporate bonds, property, infrastructure, and private equity.

Life insurance companies particularly favor commercial mortgage-backed securities (CMBS), according to a National Association of Insurance Commissioners (NAIC) 2024 special report.[5] These work like bonds, letting insurers earn returns from the mortgage market without directly handling home loans.

State regulators monitor how companies handle these funds to make sure they strike the right balance between smart investing and maintaining ready cash for policyholder needs.

How to save on life insurance premiums

Life insurance can be more affordable than many people realize, and smart timing and choices can help you secure an even lower rate. Here are a few ways you can save on your premiums:

  • Buy early. Lock in rates while you’re young and healthy. Rates can increase by 9% each year.

  • Choose term life. Term life policies offer solid protection for a fraction of the cost of permanent policies.

  • Compare quotes. Shop multiple companies since rates can vary for the same coverage.

  • Stay healthy. Healthy blood pressure, cholesterol, and weight can help you qualify for lower premiums.

  • Skip tobacco. Smokers may pay 40%–100% more than non-smokers.

  • Pay annually. Some insurers offer discounts for paying the full year up front.

  • Buy only what you need. Focus on your family’s actual needs to avoid overpaying for unnecessary coverage.

Life insurance premiums FAQs

The following information can answer your remaining questions about life insurance premiums.

  • Are life insurance premiums tax-deductible?

    Generally, no. The Internal Revenue Service (IRS) views them as personal expenses. The exception is that some business-owned policies qualify for deductions.

  • Is life insurance worth the cost?

    If you have people depending on your income, life insurance can provide crucial financial protection. Term life insurance is an option for affordable protection, with monthly premiums as low as $20 or $30.

  • What happens if you stop paying life insurance premiums?

    Your coverage ends after a grace period, typically 30 days. For permanent policies, you might tap into the cash value to cover missed payments. Once a policy lapses, your beneficiaries lose their protection.

  • What’s the monthly premium for a $1 million whole life policy?

    Premiums for a $1 million whole life policy can range from $190 to $700 or more. The cost depends on factors such as age, health history, gender, and the insurance company.

  • What’s the monthly premium for a $500,000 term life policy?

    A $500,000 term policy costs between $10 and $200 or more per month, based on term length, health, and age. Young adults in good health typically pay less than older adults, even for shorter-term coverage.

Sources

  1. Internal Revenue Service. "Do I report proceeds paid under a life insurance contract as taxable income?."
  2. Insurance Information Institute. "What are the principal types of life insurance?."
  3. SelectQuote. "Life Insurance Quotes."
  4. SelectQuote. "What is whole life insurance?."
  5. National Association of Insurance Commissioners. "U.S. Insurer Investments in Private-Label Commercial Mortgage-Backed Securities Decline at Year-End 2023."
Amy Beardsley
Amy BeardsleyInsurance Writer

Amy is a personal finance and technology writer. With a background in the legal field and a bachelor's degree from Ferris State University, she has a talent for transforming complex topics into content that’s easy to understand. Connect with Amy on LinkedIn.

Amy has been a contributor at Insurify since September 2023.

Katie Powers
Edited byKatie PowersSenior Editor
Photo of an Insurify author
Katie PowersSenior Editor
  • Licensed auto and home insurance agent

  • 3+ years experience in insurance and personal finance editing

Katie uses her knowledge and expertise as a licensed property and casualty agent in Massachusetts to help readers understand the complexities of insurance shopping.

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