When considering a new life insurance policy, many people have the misconception that any time is a good time to purchase life insurance — that waiting for a major life event or when it’s convenient won’t affect their premium rates. This actually is not the case. In order to know when to buy life insurance, you’ll need to understand some of the factors that insurance companies use to determine your policy’s rates. Depending on the type of life insurance, rates are determined and influenced by certain factors that can and do change over time.
Age & Life Insurance Premiums
One of the most significant and ever-changing factors that will affect your annual premium is age. The premium, or rate, for your new policy, will be set at the time of purchase based on your age at that time. The rate is then set for the duration of the policy. Most life insurance policies will see an annual premium rate difference of 8% to 10% for each year of age. Thus, waiting a year to purchase your life insurance policy could mean a significant increase in annual premiums. For example, a 45-year-old man in excellent health could purchase a $1,000,000 term life insurance policy with a 20-year term for around $250 less per year than the same policy purchased by a 47-year-old man of equal health. That’s an extra $5,000 paid out over the term of the policy!
These increases may seem extreme, but the reason behind it is quite simple. Each birthday is putting you one year closer to your life expectancy. Those who are closer to their life expectancy are more expensive to insure. A little time makes a big difference.
You now understand why it is very important to not put off this important decision. Putting off your life insurance purchase even for a few years could result in a much more expensive policy. Another factor to consider is that as you age, you are also running the risk of decreasing your chances of qualifying for life insurance due to declining health.
Health Also Plays a Role
Health is another qualifying factor closely related to age. There are certain underwriting requirements that involve health-related tests. In most cases, the older you are, the more likely you are to have some of the health problems that would disqualify you. Life insurance carriers will require more tests for older applicants, and the more testing you undergo the more likely the carrier is to find issues that would affect your rate. Because testing requirements differ from carrier to carrier, and because each carrier updates these testing requirements frequently, it is impossible to know what types of health tests would be performed at any given time.
Other Contributing Factors
Some additional factors that contribute to a policy’s rate are your gender and if you are (or ever were) a smoker. Even things like family health history, your occupation, and hobbies that you participate in can also become a qualifying factor.
These are all reasons why it is wise to purchase your life insurance policy as soon as possible. You are younger now than you will be next year, and you have no way of knowing what types of health problems you could be facing in a year or two. Learn more about term life insurance policy options available to you through the FICPA sponsored CPA Insurance Marketplace, and easily apply online today.