Coming to grips with your mortality is frightening enough without worrying how much life insurance will cost.
If you're concerned about how your health, your family history or your preexisting conditions will affect your chances of being insured, don't be so nervous.
The folks at InsuranceQuotes.com note that an iffy family medical history might have less impact than what you think on what you pay for life insurance. Even a family history of cancer, high blood pressure, heart attacks and other medical conditions doesn't mean you'll get shut out of decent coverage if you're relatively healthy.
"What it can do is keep you from getting perhaps the best or highest health rating," says Scott Cody, a financial planner with Latitude Financial Group in Denver, Colo., told InsuranceQuotes.
A lower health rating means that you might pay up to 20% more for your coverage. When you apply for a fully underwritten life insurance policy — one that requires you to take a physical, give a blood sample and provide a urine sample — you'll also be asked a series of questions from your insurance provider that will include questions about your family's health history. Usually, it will ask if your immediate relatives have had cancer or suffered heart attacks before they reached the age of 60 or 65 -- and by "immediate," they mean your mother, father and siblings.
The things that concern them most are health problems and death. If one of your parents had a heart attack after they retired, that isn't great. If they had one in their 40s -- or if both had heart attacks -- that's a huge issue. Family history of cancer gets the same scrutiny, but companies tend to parse out cancer related to genetics and that created to lifestyle choices. Your dad's lung cancer from smoking two packs a day won't affect you if you're a nonsmoker.
The same type of reasoning holds true for a family history of cancer. Insurers will look at how much a family history of cancer can be attributed to genetics and how much to lifestyle choices. For instance, if your mother developed lung cancer because she smoked a pack of cigarettes a day, your insurer might not ding you if you are a non-smoker.
If your family's health history is a mess of genetic abnormalities, high blood pressure and the like, there are life insurance policies that don't require exams. Granted, they cost a lot more, but that cost might be worth it if you're worried about being uninsured altogether. You could also work with an independent insurance broker -- one who doesn't work with one insurance company -- to search for the best rates for your particular situation.
Nonprofit organization Life Happens -- supported by 140 insurance companies and financial service organizations -- found that 80% of consumers have no idea what life insurance costs. Members of Generation X think it's 119% higher than what it is, while Millennials misjudged the average cost by 213%.
Unfortunately, because the folks selling life insurance are about the only ones willing to tell anyone what life insurance costs, those views of its expense probably aren't changing anytime soon. The Life Happens study found that 30% of Americans believe they need more life insurance, while 43% they'd be in a tough spot in six months if a wage-earning member of their family died. That said, 54% of Americans have absolutely no plans to buy life insurance within the next year.
"We've consistently seen over the last five years that consumers think life insurance is more expensive than it really is, and now we're seeing many are also confused as to what factors determine the cost for life insurance," says Marvin Feldman, president and chief executive of Life Happens. "We need to help educate the public about how affordable life insurance can be and the factors they can control to ensure they get the best and most comprehensive protection possible."
When life insurance is considered way too costly, it isn't considered a priority. When it isn't a priority, it takes a backseat to just about everything else. Among the youngest consumers, 29% of Millennials cited saving for vacation as a priority over purchasing some or more life insurance. Meanwhile, 23% of Gen X-ers would rather go out to eat, hit the movies or go shopping than purchase more life insurance. Even 49% of those 65 and older cited paying for expenses such as Internet, cable and cell phones are more important than life insurance -- and 60% of Millennials said the agree. It's somewhat of a gamble, but they like the odds.
"As the general population has been getting more active, eating right and living healthier lifestyles, the average price of insurance products has been improving as well," says Ralph Proceviat, chartered life underwriter and financial consultant with Patriot Brokerage Services in Westborough, Mass. "The average life expectancy of a male in the United States is now 78.8 years and for a woman, it is 81 years. Improvements in health care, pharmaceutical drugs and the avoidance of cigarette smoking are expected to continue this positive trend."
While all of the above could be reasons to put off buying life insurance, they're also a great way to keep insurance costs down. Reporting weight loss, beginning a tobacco cessation program and following prescribed treatment for chronic conditions can all result in savings on monthly premiums. Laura Adams, senior analyst at InsuranceQuotes.com, notes that term life insurance for a 25-year-old smoker costs $456 more per year on average than it does for her non-smoking counterpart. By age 65, that gap widens to a whopping $8,503 per year. For men, the annual divide in life insurance payments between smokers and nonsmokers starts at $594 per year at age 25 and balloons to $10,975 by age 65.
That's just for the cheapest option. Term life insurance is limited in length and, by design, usually ends prior to average life expectancy. Proceviat notes that only 2% of term policies result in death claims, whihc makes them relatively inexpensive. The shorter the length of coverage, the less of a chance that a claim will be paid, the cheaper the coverage.
"Permanent products such as universal life and whole life, on the other hand, are permanent products and can be retained by an insured as long as they live," Proceviat says. "The insurance company knows that these policies can be retained for life, so the expectation is that the majority of these polices will end up as death claims and therefore the price is higher."