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Age and term life insurance rates

Find out why sooner is better

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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