Age is the focus of billions of dollars
in our society with people's fixation on
youth being pretty apparent.
Unfortunately, life insurance and the
rates you will pay are equally fixated
on your age. Age is one of the
most (if not most) critical factor
when calculating your
life insurance
rates. Let's take a
look at the effect that age has on life
coverage.
It's
a pretty common complaint of the
old...youth is wasted on the young.
Unfortunately for the young, wisdom is
usually garnered as a result of errors
and mistakes. There's doesn't seem
to be an easier way around it.
Take life insurance. By the time
most people start to realize the need
for life insurance, they are at an older
age...maybe late 30's, 40's, or 50's.
Let's face it...this is when financial
responsibilities start to crop up in the
form of children, spouses, mortgages,
and businesses. The problem is
that the rate you will pay for life
insurance goes up each year as you get
older. We will occasionally get
someone on the phone who feels this is
unfair. Why should the rates for
life insurance go up with age?
"I'm healthy at age 50" is the common
retort.
Life
insurance is not about a specific person
be they age 20 or age 50. It's
about large group of people that all
share risk together. By spreading
this risk out among people of a similar
age, gender, health status, and area,
the financial loss from passing away
early can be spread among many people to
reduce the net effect on any given
person in the "risk pool". Age
then becomes obvious in the equation.
If you are grouped with people age 25,
the chance or risk of one of you passing
away is pretty low. Even if the
payout is $500K, the risk is probably in
small percentages. This is where
the premium amount comes from (plus
additional amounts for overhead, a
buffer, profit, etc). If you think
about it, most of the deaths for a
person age 25 is probably
accidental/injury related. There
are the rare serious diseases that
strike early in age but they are just
that...rare.
Chronic and more serious disease tends
to have an accumulating effect that
increases with age. The main
killers in the U.S. fit into this
category with cardio-vascular disease
and cancer reflecting the long
accumulation of damage or disease across
decades. The blockage of a heart
valve doesn't happen overnight and is
rare at age 25 outside of congenital
issues. Decades of hamburgers and
fattening food take time to wreak havoc
on your cardio-vascular system.
This is why the rates at age 50 will be
quite different (read as higher) than at
age 25. The risk of passing away
early (during the
term of a life
insurance policy) increases
with age to reflect this accumulation
effect.
What
if you're perfectly healthy...with the
body ostensibly of a 25 year old at age
50. There are those that fit this
bill. However, it's difficult for
the life insurance company to predict
the future and it can only make a
determination within a range of levels.
You will likely get the best health
class but you are still included in the
age 50 rate band. Keep in mind
that if you
purchase 20 year
term life, that takes you to
age 70. The risk associated with
this high range is considerably higher
than 20 and even 50.
If
you are purchasing 20 years of term life
at age 50, the carrier has to look at
the risk during that entire 20 year
range. After all, you will not
remain age 50. You will get older
each year which means that the risk of
passing away increases as you go
forward. The carrier has to
calculate the risk of passing away in
year 20, year 19, year 18, and so on
based on the attained age at that time.
The
net take away is that you will get the
best rate for term
life insurance by purchasing
as young as possible. Don't beat
yourself up. Yes, age 25 might
have been a better time to buy term life
now that you're age 45. Age 45,
consequently will be better than age 50
so it's best to let the past go and
start saving for the future.
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