How much you pay for life insurance depends on 3 major factors

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how much does life insurance costAP Photo/Nati HarnikHealth plays a big role in the cost of life insurance.AP Photo/Nati Harnik

  • How much life insurance costs depends how much coverage you want, the type of policy you get, and how much risk you pose.
  • Life insurance companies independently decide how much risk you pose, considering factors like age, health history, a medical exam, and what you do for work.
  • Smoking is considered one of the biggest risk factors across the board. Nicotine users can pay two to three times more for a premium than the average person.
  • Term life insurance is typically the cheapest type of policy because it lasts for a fixed period of time. 
  • According to Policygenius, a 30-year-old male with "preferred health" can expect to pay a monthly premium of $23 for a $250,000 30-year term life policy, while a woman in the same situation would pay an average of $19.

At a certain point, you may consider buying life insurance to protect your family's future.

Insurance-comparison website Policygenius boils it down to a simple question to decide whether you need life insurance: Does anyone rely on your income for their financial well-being? That could be children, a spouse, aging parents, or anyone else who could be considered some level of dependent.

If someone else relies on your income, then you probably need life insurance. Stay-at-home parents, retirees, and children generally don't.

Need life insurance? Our partner Policygenius can help find the right policy for you »

You can think of a life insurance premium - the amount you pay monthly to the insurance company - like a three-legged stool. How much you pay depends on how much coverage you want, the type of policy you get, and how much risk you pose. The average person can expect to pay between $300 to $400 a year for life insurance, according to Policygenius, but it really depends on your situation.

The first step is calculating how much life insurance you need. This amount is called the death benefit and will generally be paid out to your beneficiaries in a tax-free lump sum. Typically, the higher your income and the more expensive the city you live in, the more money your family will need in your absence.

Calculate your own estimated life insurance needs with SmartAsset's free calculator:

Next, you'll decide what type of policy you want. In most cases, a limited-time, or term life insurance policy is a good fit for coverage because it's the most affordable option, explains Logan Sachon, insurance editor at Policygenius. Whole life insurance policies are six to 10 times more expensive than term life, Sachon told Business Insider.

Finally, you can start getting quotes. A site like Policygenius can help you compare premiums from different carriers based on the coverage you want, and you can apply as soon as you find one you like.

According to Policygenius, a 30-year-old male with "preferred health" can expect to pay a monthly premium of $23 for a $250,000 30-year term life policy to $73 a month for a $1 million 30-year term life policy. Women pay less, on average, ranging from $19 to $58 a month for the same policies. By comparison, a whole life policy would cost the same 30-year-old male about $122 a month.

The carrier will then evaluate you on a variety of factors to determine your level of risk. This is often the most "rigorous" part of the process, Sachon said. "Each insurance company weighs risk differently, but there are certain factors that they all consider when evaluating your application," she said.

Here are the major factors every carrier considers, according to Sachon:

  • Age: Life insurance premiums increase an average of 8% each year you age, regardless of health.
  • Nicotine use: "Being a nicotine user is one of the quickest ways to raise your life insurance rates. Smokers can pay two to three times more than nonsmokers," Sachon said. Some carriers also consider marijuana use.
  • Weight: Being overweight or underweight can affect your premium.
  • Health history: This includes your prescription history and diagnoses.
  • Medical exam: Life insurance companies also require - and pay for - a medical exam with blood and/or urine tests.
  • Credit history: Credit scores don't affect premiums much, but financial red flags, including bankruptcy, will.
  • Driving history: Insurance companies will look over your motor vehicle report, which includes any officially documented violations, to determine risk.
  • Occupation: If your job involves high-risk activities, "you could either be charged a higher premium or declined coverage altogether," Sachon said.

While some types of life insurance policies don't require a medical exam for those in good health, Sachon said, "it's almost always a good idea to go through full underwriting and get the medical exam, as it gives you more options for coverage."

Need life insurance? Our partner Policygenius can help find the right policy for you »

Finally the insurer will determine a premium and you can activate your policy with the first payment. Bear in mind that most life insurance policies have a contestability period, according to Policygenius. This two-year period from the day the policy is activated allows the carrier to review information provided during the application process and potentially terminate the policy in cases of fraud.

Disclosure: This post is brought to you by the Personal Finance Insider team. We occasionally highlight financial products and services that can help you make smarter decisions with your money. We do not give investment advice or encourage you to adopt a certain investment strategy. What you decide to do with your money is up to you. If you take action based on one of our recommendations, we get a small share of the revenue from our commerce partners. This does not influence whether we feature a financial product or service. We operate independently from our advertising sales team.
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