The cost of life insurance

What factors affect life insurance premiums?

The main factors are:

Your general situation

  • Age. The older you are when you take out insurance, the higher the cost of the premiumA premium, or insurance premium, is an amount that a person or company must pay on a regular basis to keep their insurance in effect. For example, if Mary has to pay $200 per year to keep her life insurance in effect, then the premium is $200.
    The premium should not be confused with the face amount, or insured amount, which is the amount that the insurance company has to pay out. In the same example, if Mary has life insurance that pays $100,000 to Peter upon her death, then the face amount is $100,000. 
    because you’re more likely to die in the near term.

  • Gender. A healthy man will pay more than a healthy woman because men have a shorter life expectancyLife expectancy at birth is the average number of years that a newborn can expect to live. Since it is an average, some people will die very young and others will live to be over 100. than women.
  • Where you live. Insurance costs more in areas of Québec where life expectancy is shorter.
  • Your health. The healthier you are, the greater the likelihood of finding affordable insurance.
  • Employment. Some jobs are riskier than others! The riskier your job, the higher the premium will likely be.
  • Tobacco use. Smoking reduces life expectancy. As a result, a smoker will pay more than a non-smoker. If you were a smoker when you purchased life insurance and you’ve gone 12 months or longer without smoking, let your insurer know: you could get a lower premium. If the opposite is true—you weren’t a smoker but you take up smoking after you purchase your life insurance—your premium won’t increase; however, if you cancel your insurance to take out another policy, you will pay the smoker’s rate.
  • Alcohol use. The insurer could refuse to insure you or charge you a higher premium depending on how much you drink and how long you’ve been drinking for.
  • Use of non-prescribed drugs. The insurer could refuse to insure you or charge you a higher premium depending on the drugs you use, how much you consume and how long you’ve been using them.
  • Participating in a dangerous sport or activity. If you practise scuba diving, rock climbing, motor car racing or parachuting, for instance, you could be charged a higher premium because participating in these kinds of sports or activities increases the risk of death.

The insurer can cancel the contract or reduce the insurance amount during the first two years the contract is in effect if you omitted information or made a false statement.

The insurer can cancel the insurance contract after two years have lapsed if it determines that the false statement or omission was made with the intention of defrauding the insurer.

End of the warning

The insurance itself

  • Insured amount. The higher the amount, the higher the premium.
  • Duration of the life insurance policy. The premium for 10 year term life insurance starts off lower than the premium for whole life insurance; however, it is increased each time the policy is renewed to reflect the change in your age since the time of purchase or last renewal. In the case of whole life insurance, the premium usually stays the same for as long as you live; however, the increasing risk of death as you age is already reflected in the premium when you purchase the policy. To be able to pay the insurance amount in the event of death without increasing the premium over time, the insurer has to set aside and invest a portion of the premium. For example, if you pay premiums for 25 years, a portion of the premiums will be invested by your insurer over that 25-year period.

Economic conditions

  • Current and expected interest rates. If you purchase insurance when insurers are unable to invest premiums at high interest rates, the insurance will usually cost more. The lower the interest rates your insurer obtains, the less investment income it is able earn and the more it has to increase premiumsThis is a simplified description of how things work.. The same principle applies when you save for retirement: The lower the expected rate of return, the more you have to save to achieve your financial goals.

While these are the main factors affecting premiums, there are others. For example, practising a sport regularly to get in shape and adopting healthy eating habits can bring down the cost of insurance.