Buying life insurance means buying coverage and protection for your family. You make payments, called premiums, to ensure your policy is active and would pay out a death benefit to your loved ones when you die.
Premiums are set by your insurance company and are based on a number of factors, including your age and health, the type of policy, the coverage amount, and whether you add on any riders. Except in rare cases, your rates are set for the life of your policy.
Life insurance terms you should know
Beneficiaries: The people you name on your life insurance policy to receive the lump sum of money — also known as the death benefit — when you die.
Cash value: The portion of a permanent life insurance policy’s monetary value that grows tax-deferred over the life of the policy.
Death benefit: The amount of money the life insurance company will pay your beneficiaries when you die.
Face amount: The dollar amount, or death benefit, your beneficiaries receive if you die while your life insurance policy is active.
Insured: The person who is covered by the insurance policy.
Policy: The legal document that includes the terms and conditions of your life insurance contract.
Policyholder: The person who owns an insurance policy. Usually, this is the same person as the insured.
Permanent life insurance: A type of life insurance that lasts for the rest of your life and usually includes a cash value account.
Premium: The amount you pay your insurance company to keep your coverage active. Premiums are typically paid monthly or annually.
Riders: Add-ons to a life insurance policy that provide more robust coverage, sometimes for an extra cost.
Term life insurance: A life insurance policy that lasts for a set number of years before it expires. If you die before the term is up, your beneficiaries receive a death benefit.
Underwriting: The process where an insurance company evaluates the risk of insuring you and determines your final rate.
What are life insurance premiums?
Your premiums are the payments you make to keep your life insurance policy from lapsing. As long as you pay your premiums, your life policy remains active for the policy’s duration.
If you buy a permanent life insurance policy like whole life insurance, your policy premiums keep your coverage active for life. Term life insurance stays active for a set period, usually 10 to 30 years, then expires.
How often do you pay life insurance premiums?
Most people pay their premiums monthly, but you can save money by paying annually. Some life insurers offer discounts of 2% to 5% if you pay up front each year. Those savings can add up, but monthly payments are easier for most people to budget for.
How do you pay your life insurance premiums?
The most commonly accepted forms of payment are electronic funds transfer (EFT) and check, though other forms may be available from your insurance company. Most life insurance companies don’t accept credit card payments beyond the initial payment, and none accept cash.
Learn more about how to pay for life insurance
Why your premiums might differ from your life insurance quotes
Life insurance quotes are estimates that your insurance broker or company give you before and during the application process. Your initial quotes are usually close to your final premiums, but can change based on information your insurer discovers during underwriting.
When you apply for life insurance, the first quotes you get are based on an initial series of questions about your health, family history, and driving record.
Next, you’ll talk to a life insurance agent on the phone (life insurance is highly regulated, and this is a must). The agent will get a fuller picture of your health, and this additional information may change your quotes.
After your call, you’ll set up a free medical exam or the insurer will request previous medical records from your doctors. If more potential insurance risks are discovered, your rates will change again.
What if you can’t pay your premiums?
If you have a life insurance policy in place and can’t pay your premiums on the billing date, you have a 30-day grace period to make a payment before they cancel your policy. Under special circumstances, they might extend this period.
Life insurance premiums are one of the core elements of a life insurance policy, so it’s important to understand how they’re determined and how they fit into your budget. Get some free life insurance quotes to see which coverage options fit your family’s financial needs.
