Shuman Roy is an entrepreneur, business owner, and musician. He started RoysNoys, LLC in 2013 as a music production and education service company. He also offers small business consulting and advisory services to help businesses get from start-up mode to turn-key operations. Shuman earned his M.B.A from the Stern School of Business in 2001 and has an undergraduate degree from Manhattan College in ...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Joel...

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Reviewed by Joel Ohman
Founder, CFP® Joel Ohman

UPDATED: Apr 12, 2022

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Insurance Q&A: “Why does life insurance cost more when you get older?”

Life insurance companies make money based on how long you live after the policy is issued, otherwise known as how long the policy is “in force.”

The older you get, generally the rate, or amount it costs you per $100 of coverage, is higher. A higher overall rate leads to a higher premium. Of course, if you start paying early, you could get a low premium for the life of your policy. It’s generally only when you wait until later to sign up that premiums rise exponentially on a permanent policy or even a term policy.

[How much life insurance do I need?]

Do younger insureds pay more overall?

If you purchase a life insurance policy when you’re younger and continue to pay into it for many years, it will be more affordable in the moment. However, the insurance company will collect more total premiums before they have to pay out the value of the policy. So even though they charge you less each month, they make a greater profit.

Conversely, if you purchase a life insurance policy when you’re older, the odds are you won’t pay as much money into the policy before the insurance company has to pay out the value. They’re playing a game with you. You’re betting you’ll die before you have to pay the full value of the policy. They’re betting you’ll live long enough to contribute enough premiums to balance out your policy and setting your premiums to try to collect a certain amount in less time.

Of course, the exact price will vary based on things like the type of life insurance you choose.

Scenario 1, 30-year-old:

You purchase a 10-year, $100,000 term life insurance policy at a rate of $2.00 per $1,000 of coverage per month. Your total monthly payment would be $16.67 ($2.00 X 100 / 12 months).

Statistically, you probably won’t die while this policy is active, and the life insurance company will collect $2,000 in premium ($16.67 X 12 months X 10 years) from you.

For a relatively low cost of life insurance monthly, your beneficiaries are covered (at least for a decade) in the tragic event you die before the natural life expectancy of 78.

Scenario 2, 70-year-old:

You purchase a 10-year, $100,000 term life insurance policy at a rate of $20.00 per $1,000 of coverage per month.

Your total monthly payment is $166.67 ($20.00 X 100 /12 months). If the policy goes to full term, or the entire 10 years, you would pay $20,000 in premium ($166.67 X 12 months X 10 years).

In this example, the odds are you will pass away before the policy has expired, and the insurance company will likely have to pay out the $100,000 to your beneficiary.

This means your insurer would lose $80,000 overall, assuming you died on the last day the policy was active.

The above example illustrates exactly why insurance companies charge more money for older individuals.

Statistics guide most of the pricing and can provide a solid basis for premium determination.

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Is life insurance harder to qualify for when you get older?

This is a common misconception regarding life insurance.

While it is entirely accurate that life insurance companies charge a higher policy premium as we get older, there is no truth to the rumor that coverage is harder to obtain based on age alone.

Life insurance companies make money by essentially gambling on how long you will live. Older people traditionally qualify for lower payouts with higher premiums. If you choose term life insurance, you can increase your payout while reducing your premiums, but you take the chance of getting nothing if your life insurance policy expires.

The longer you live (and pay premium) the more money they collect and invest to earn money for their company.

If you purchase a policy and suddenly die, the insurance company loses big, as they have to pay out your policy limit to your beneficiary.

In this unpleasant scenario, they may not have collected enough premiums from you to invest.

These facts regarding life insurance only reveal that coverage is more expensive as we age, not harder to qualify for.

If you are willing to pay more money, you can usually obtain coverage in the open market.

However, this doesn’t necessarily include pre-existing conditions, which can make life insurance coverage harder to come by. Unfortunately, the likelihood of certain conditions does increase with age which limits or eliminates the types of life insurance you qualify for.

When does the cost of life insurance outweigh the benefits?

Of course, at some point it may not make sense for a life insurance company to offer coverage.

In the event you have a statistically overwhelming chance of dying before a policy term ends, an insurance company would not be able to charge you a rate that makes sense for them or you. There’s never a guarantee on how long you will live, but insurance companies can make an educated guess before issuing a universal life insurance policy that will lend peace of mind.

For example, purchasing a life insurance policy on you 97th birthday isn’t a good idea.

The insurance company would have to charge you an astronomical amount of money (near the exact cost of the death benefit) in order to ensure they make out.

You could pay $49,000 (in one lump payment) for $50,000 in coverage.

Remember, the higher the odds the insurer has to pay out money, the greater the cost. Depending on the type of policy, you’re increasing paperwork and complications for loved ones without actually guaranteeing a fair payout.

Taking all this information into account, you should purchase life insurance if you need it. If you’re unsure, a funeral costs or other limited payout policy may reduce your monthly premiums while achieving the desired result.

Any reasonable professional would not recommend purchasing a life insurance policy simply to make sure you qualify for coverage in the future.

If life insurance is right for you, it’s a good idea to have a policy in the event the statistics don’t work out in your favor.

The benefits vastly outweigh the minor cost of coverage in most cases.