How much does life insurance actually cost?

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One of the reasons holding Canadians back from applying for life insurance is the perceived cost. Many don’t feel like they can afford what they deem to be an adequate amount of coverage. We’ve mentioned in the past that many consumers cited costs that were three to four times higher than the actual premium. With that big of a discrepancy, it’s no wonder many of us are underinsured. In order to paint a clear picture of the true cost of life insurance, we’ve put together several tables with the best rates in the industry to show you how much life insurance actually costs.

There are four tables, one for each of the following categories: male non-smoker, male smoker, female non-smoker and female smoker. Although standard rates are listed, preferred rates are possible if the underwriter determines that you are healthier than the average person in your risk class. Monthly premiums are shown for $500,000 of coverage for the most common products, such as term and universal life, at different ages. Here is a short description of each product:

Term-10: The most basic term product, with premiums increasing every 10 years until a certain age, which is usually 80 or 85. The premiums shown in the tables below are for the first 10 years only.

Term-20: Instead of increasing every 10 years, the premium for term-20 products go up every 20 years. The premiums shown in the tables below are for the first 20 years only.

Term-to-65: A term policy that provides a guaranteed level premium and expires at age 65, right up to the traditional retirement age.

Term-to-100: Not to be confused with a term product, term-to-100 is actually the most basic permanent product, providing guaranteed level premium and coverage for life, payable to age 100, with no cash values.

Universal life with level cost of insurance: This is similar to the term-to-100 product, except with the ability to deposit more money to invest in a tax-sheltered environment, similar to an RRSP or TFSA. For the purposes of this demonstration, only the minimum amount required to keep the policy in force is shown.

Whole life pay to 100: A type of permanent life insurance that provides coverage for your lifetime. It also has guaranteed level premiums, builds up a cash value, and has features that help keep your coverage in place if you can’t pay the premiums.

Whole life pay to 65: It has the same features as the above, except premiums are only required until age 65.

Whole life pay for 20 years: It has the same features as the above, except premiums are only paid for 20 years.

September 2014 male non-smoker

September 2014 male smoker

 

September 2014 female non-smoker

September 2014 female smoker

We can gather several points from these tables about the true cost of life insurance. First, term insurance is very affordable, at least at a young age and for the first couple of renewals. What this table doesn’t show is the astronomic rises in premium for renewals down the line, which is why most people cancel their policies after a certain age, or convert a portion of it to permanent insurance to lock in a level premium.

Secondly, it’s also important to compare the premiums beyond the first 10 or 20 years of the policy, for it may vary drastically even if the initial term’s premiums are quite similar. There are some that differ by hundreds of dollars per month after the first renewal when the initial terms were identical!

Next, besides a few products whose premiums are dominated by a single carrier, the best prices at different ages and smoking status are scattered among a handful of insurance companies. This underscores the importance of shopping around and finding a broker who isn’t attached to a particular company.

Also, comparisons made between universal life and whole life products should not be based solely on premium. Investment options, fees, cash values, coverage options, available riders and underwriting practices are all factors that should also be considered.

Finally, it’s common knowledge that the younger you are, the lower your premiums and vice versa. But it’s lesser known that the rates increase exponentially. As you can tell, the difference in premium between a 25 and 35 year old is less than the difference between a 35 and 45 year old, and so on. So while you may not need life insurance at age 25, you would benefit from a lower premium if you applied while you were young. It’s one of the easiest ways to save on life insurance.

There may be names of smaller companies on the list that you don’t recognize. If you’re wondering if they are financially stable companies, a look at their MCCSR will tell you if they have adequate capital to meet their obligations to policy owners. The Office of Superintendent of Financial Institutions make it easy for you to look up an insurance company’s MCCSR.

We’ll be making a new post every few months to identify any changes, as insurance companies update their rates due to changes in the mortality rates and claims experience. As carriers look to continue to compete in price, especially in term products where features don’t vary much among carriers, you should be able to see these names change periodically.

After seeing the premiums for all sorts of products for yourself, are they in line with your expectation? Or were you expecting something entirely different? More importantly, how do you budget for life insurance now that you know the true cost?