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A life insurance premium is the payment you make as portion of the cost of an insurance policy. Here are some examples of factors that can affect a life insurance premium: age, gender, health history, occupation, hobbies and the policy.

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Life insurance is one of the best ways you can protect your loved ones. However, understanding which factors can affect your life insurance premium and what aspects of your application could raise or lower your rates can be confusing.

According to a survey by Life Happens, less than half of Americans consider themselves to be knowledgeable about life insurance. This is especially true when it comes to costs, with the median estimate of the cost of life insurance clocking in at more than three times the actual cost.

We're here to demystify the process so you can have a better handle on how life insurance rates are determined when comparing life insurance policies.

8 Factors That Affect Life Insurance Premiums

1. Age

Your date of birth is the top factor affecting your life insurance premium. There are a number of reasons why age factors into life insurance and younger policyholders pay lower premiums. As you age, the likelihood an insurer will have to pay out on your policy increases; therefore premiums increase.

2. Gender

Women tend to live longer than men. In the United States, the average life expectancy for women is 81.1 and 76.1 for men. The disparity means that women generally pay less for life insurance than men do.

3. Health History

Insurers may require a medical exam and access to your health records before issuing a policy. A history of medical conditions, especially serious illnesses such as heart disease or cancer, will increase your premiums. Insurers will also look at your weight, cholesterol levels, blood pressure and other metrics that could indicate future medical conditions.

4. Family Health History

Even if you have no current medical conditions, a family history of illness, especially hereditary diseases, could factor into your life insurance premium and increase the cost of your coverage.

5. Smoking

The health risks associated with smoking, including potentially fatal diseases like cancer, mean increased premiums. If you've quit smoking since purchasing life insurance (congrats, by the way!), call your provider to see if your nonsmoker status will lower your rate.

6. Hobbies

Do you spend weekends skydiving? Have a passion for racing cars? High-risk hobbies could lead to higher premiums, but exactly which activities fall into this category varies by insurer. It may pay to shop around for quotes if you enjoy high-risk hobbies.

7. Occupation

Loggers, pilots and roofers are among the many professions considered riskier than others. When you apply for life insurance, insurers will ask about your work. Your premiums could be higher if your occupation exposes you to toxic chemicals or requires you to perform dangerous duties.

8. The Policy

The specifics of the policy you choose is another factor that affects your life insurance premium. Policies issued for larger benefit amounts over longer terms generally cost more than policies with smaller benefit amounts over shorter periods. Also, there are differences between whole and term life insurance policies. Whole, or permanent, life insurance policies tend to be more expensive than term life insurance policies.

Understanding the factors that affect life insurance premiums - and making changes such as losing weight, quitting smoking or adopting a healthy lifestyle to lower your blood pressure and cholesterol - can help you get the right policy at the right price.

We Can Help

Our life insurance calculator helps you determine how much coverage you need. We offer three types of life insurance: term life, whole life and universal life. Talk with your Farm Bureau agent to see which is right for you.

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8 Factors That Can Affect Life Insurance Premiums

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Life insurance is one of the best ways you can protect your loved ones. However, understanding which factors can affect your life insurance premium and what aspects of your application could raise or lower your rates can be confusing. According to a survey by Life Happens, less than half of Americans consider themselves to be knowledgeable about life insurance.

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A beneficiary is the person that you name in a life insurance policy to receive the death benefit. They receive their payment by filing a death claim and then receive a lump sum payment meaning they receive the entire payout at once upon the death of the insured. Another way they can choose to receive their payment is through installments or annuity payments.

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The whole point of having life insurance is to protect the policy beneficiaries (such as family members or loved ones) when the insured dies.

How does a life insurance payout work?

Life insurance benefits are provided to a policy's beneficiaries when the policyholder dies. Recipients usually need to file a death claim with the insurance company by submitting a copy of the death certificate. Insurance companies then review the claim and issue the payout.

If you are one of several beneficiaries, the policy will dictate how much of the life insurance proceeds you receive.

If you are the sole beneficiary, then you will receive the entire death benefit outright.

It is important to know the bureaucratic procedures that you must follow to get your money after a loved one passes.

Death - The First Step

A whole life insurance policy remains in force as long as the insured is living and someone is paying the life insurance premiums (unless the policy is paid up).

A term life insurance policy remains in force as long as the insured is living for the duration of the term, and then it will expire.

When the insured dies, both permanent and term life policies pay out their face values to the beneficiary or beneficiaries named in the policy.

If you are unfamiliar with these different insurance products, read this guide to types of life insurance policies.

Death Claim

After the policyholder passes, the beneficiaries must procure a copy of the insured's death certificate and file a death claim in the state of residence of the deceased.

Most life insurance companies will also require you to file a benefits claim with them before they will release the money. A life insurance claim can be a complex set of documents that detail the manner and cause of death, as well as other details that the insurance agency may need to know to pay the correct death benefit.

Say, for example, that the insured purchases a policy rider that doubles the death benefit if the insured dies in an accident. Years later, the insured dies in an accident. There will be a section in the benefits claim paperwork requiring beneficiaries to specify the nature and cause of the accident; and whether the insured could be either partially or totally at fault. If no fault is found, then the policy will pay twice the face amount per the policy rider.

The death benefit can be adjusted up or down, depending upon the terms of the policy and the riders contained in the policy. The information on the benefits claim paperwork determines the final payout amount.

If the insurance company has further questions about the nature of the insured's death, they may start their own investigation into the circumstances surrounding the death. They may obtain additional information such as police and medical reports and other official sources of data before deciding on whether, or how much, to pay on the death claim.

For example, if the insured dies while committing a crime, then the insurance company may deny the payout even though all other conditions are met. It all depends upon the specific rules of the insurance company and state laws.

The processes involved in claiming a death benefit may take a long time. Be sure to contact the life insurance company immediately following the death of the insured to get the ball rolling. You should have the original death certificate on hand (preferably along with a few certified copies), the original application with the policy number, and the benefits claim form on hand when you contact the insurance provider.

It usually takes life insurance companies anywhere from 30 to 60 days to process a claim.

Processing a claim can take much longer if the insurance company does not receive all documentation, or if the insurance company launches an investigation. The maximum length of time varies by state.

Two-Year Contestability Period

If the insured dies within the first two years of the life of the policy, then the insurance company may choose to delay the death benefit payout until the full two years have elapsed.

So if someone takes out a policy and dies six months later, the beneficiaries may have to wait another 18 months before receiving the death benefit.

Since death happened so soon after the policy was purchased, the insurance company may investigate to determine whether the insured took out the policy with the intention of committing fraud.

There is often a suicide clause that coincides with the two-year contestability clause. A suicide clause states that the insurance company does not have to pay the death benefit if the insured commits suicide within two years of taking out the policy.

Death Benefit Payout

Life insurance companies often take their time when processing death claims to ensure that the beneficiary genuinely deserves the death benefit and that no fraud has been committed. You may have to wait months to get your money, especially if the circumstances surrounding the death of the insured are complex and ambiguous.

Once a decision is reached, beneficiaries can expect to receive their money in anywhere from a couple of weeks to 45 days.

State laws usually specify the maximum amount of time that can elapse before the life insurance company must send you your check. The life insurance company will usually send the funds in the form of a bank check unless the beneficiaries previously specified a direct deposit option and given the insurance company the necessary bank information.

Who Gets the Payout

Anyone listed as a beneficiary is legally entitled to either some or all of the death benefit.

To be named a beneficiary, the insured has to list you as the sole or partial beneficiary while they were living.

Once the insured dies, the beneficiary status becomes irrevocable. That is, no one can be named as a new beneficiary once the insured is gone.

The insured only has to name one primary beneficiary, but can also designate a secondary beneficiary if need be.

Unlike policyholders, beneficiaries do not need to take a medical exam or get life insurance quotes to get paid.

Payout Options

You may assume that the only way that the insurance company will pay you is with a single lump-sum payment. This is not the case.

There is a range of payout options to choose from, and the right choice depends upon your needs and objectives.

Here are the 6 main life insurance payout options:

Lump-Sum - This is the simplest form of payout and settles the account with the insurance company with a single deposit.

Installment Payments - Also known as a systematic withdrawal, this is where the life policy pays out the death benefit in installments, such as 20% of the full death benefit amount every year for five years. The beneficiary usually earns interest on the unpaid amount while the insurance company still holds it.

Straight Life Income - The life insurance company will make periodic payments that are guaranteed to last for the rest of a beneficiary's life, no matter how long that person lives. This long-term amount can be paid on a monthly, quarterly, or annual basis.

Life Income with Period Certain - One of the big disadvantages of a straight life payout is that if a beneficiary dies soon after the payout begins, then the insurance company will keep the remainder of the money. Therefore, a "period certain" guarantees that payments are made for at least a certain period of time, such as for 20 years after the death of the insured. That way, if a beneficiary dies five years later, their contingent beneficiary would receive payments for another 15 years.

Joint Life with Survivorship - This form of payout is calculated on the lives of two people and continues to pay out as long as one of them is living. A period certain can also be added on to this form of payout. (It should be noted that joint and period certain payouts are less than straight life payouts because of their guarantees.)

Interest Only - This allows the life insurance company to keep the life insurance benefits and pay the beneficiary the interest generated from the principal amount.

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How Does a Life Insurance Payout Work? [Mason Finance]

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The whole point of having life insurance is to protect the policy beneficiaries (such as family members or loved ones) when the insured dies. Life insurance benefits are provided to a policy's beneficiaries when the policyholder dies. Recipients usually need to file a death claim with the insurance company by submitting a copy of the death certificate.

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1. Term life insurance lasts a specific amount of time before it expires & the beneficiary receives a death benefit if they pass away before the term ends. 2. Whole life insurance on the other hand lasts your whole life & has a death benefit as well as cash value. 3. Universal life insurance lasts your whole life. It has a savings account inside the policy. 4. Variable life insurance is permanent and pays a specified amount to your beneficiaries. It has a cash value that varies.

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Final expense insurance

If term life insurance, whole life insurance, or other permanent policies aren't a fit, but you're still looking for a way to cover funeral or burial costs, final expense life insurance might be right for you.

Final expense insurance is a unique type of policy that covers the cost of anything associated with your death, including medical care, a funeral, or cremation. It's usually issued only to people of a certain age and the policy is valid only up to a certain age.

Like other permanent life insurance policies, there's a cash value that can grow over time. The two types of final expense life insurance policies are simplified issue and guaranteed issue.

Final expense insurance is usually attractive to older people who don't have other life insurance coverage (maybe they outgrew their term life policy) and don't have enough savings to pay for their own funeral, which costs $8,000-10,000 on average. Coverage is usually for small amounts, from $5,000 to $25,000, to cover those expenses. It's useful if you don't have another way to pay for your funeral and don't want to burden your family with the costs.

However, final expense insurance has higher life insurance premiums for a relatively low coverage amount. If you or your family can pay for a funeral through other means, that's your best bet.
→ Read our guide to the best life insurance companies for seniors.
Simplified issue life insurance

Simplified issue life insurance is a type of whole life insurance that falls under the final expense category.

Typically when you apply for life insurance, you go through a paramedical exam as part of the underwriting process so the insurer can find out how risky you are to insure. The exam helps them set your premium rate.

With simplified issue life insurance you can skip the medical exam. That's the "simplified" part of this policy type. This is also known as a " no exam policy." You're not out of the woods completely, though. You don't need to go through the medical exam, but you do need to fill out a health questionnaire, answering questions about smoking habits and serious illnesses.

People in poor health may have to take the exam if they have too many health issues, and they could be flat-out denied by insurers. For healthier people in a hurry, it can be a way to skip scheduling the paramedical exam, which adds some time to the underwriting process. But this benefit comes with a major financial drawback.

With a term life insurance policy, your premium rates are directly tied to your chances of outliving your policy. If you're young and/or healthy, you'll pay lower rates than someone older and/or in poor health. That's why the medical exam is important. Since there is no medical exam with simplified issue life insurance, the policies tend to be more expensive than term policies.

Even if you think a term life policy will be prohibitively expensive, it's worth getting a free quote to see exactly how much you'd pay. You may be surprised at how affordable it is.
→ See our full cost guide to determine how much life insurance may cost for you.
Guaranteed issue life insurance

Guaranteed issue life insurance takes the concept of simplified issue life insurance - forgoing the health exam - a step further in that you don't have to answer any questions about your health, either. As long as you can pay the premium, the insurer will cover you, needing only your age, sex, and state of residence.

That makes it appealing for older people, whose declining health makes it prohibitively expensive to get coverage with other insurance types. Guaranteed issue life insurance is useful for elderly applicants, but others can likely get more life insurance coverage at a lower cost with a different policy type.

Just like with simplified issue life insurance, the lack of insight into your health conditions that a medical exam and interview would provide means that you're going to be paying more for coverage.

Group life insurance policies

Group life insurance is an employee benefit provided by some employers. It isn't technically a life insurance type, but it's important to know how it's different from privately purchased term life.

Group life insurance is most commonly term (although it can be whole). The real reason we bring it up, though, is that most people think their employer-sponsored life insurance is enough when in most cases it isn't.

Make no mistake: If your employer is offering life insurance at no extra cost to you, it's a great benefit. By all means, get insured. But if you need life insurance to protect your family, employer-provided coverage may not be sufficient.

Employer life insurance provides fairly low coverage, usually only one to two years' worth of salary. If your income is $50,000 per year, for example, you might need $500,000 or more in coverage to meet your financial obligations.

If you want more coverage, it's likely to be more expensive than buying your own policy if you're a person in relatively good health.

In short, don't automatically pass up group life insurance, but don't dismiss other options, either. Make sure it fits your needs and see how you can work it into your private coverage.

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If term life insurance, whole life insurance, or other permanent policies aren't a fit, but you're still looking for a way to cover funeral or burial costs, final expense life insurance might be right for you. Final expense insurance is a unique type of policy that covers the cost of anything associated with your death, including medical care, a funeral, or cremation.

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Life insurance is a contract between a policyholder and an insurance company who pays out a sum of money after your death to those you designate as beneficiaries.

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Life insurance is a popular part of long-term financial planning. But to effectively incorporate this tool into your portfolio, you must understand how and when life insurance payouts are delivered to beneficiaries. This includes understanding how quickly benefits will be paid and designing the policy with the payout option that works best with your estate planning.

Typically life insurance benefits are paid when the insured has died, and the beneficiaries file a death claim with the insurance company, submitting a certified copy of the death certificate. Many states allow insurers 30 days to review the claim. Then they can pay it, deny it or ask for additional information.

Most insurance companies pay within 30 to 60 days of the date of the claim, says Chris Huntley, an insurance agent and director of marketing at JRC Insurance Group in San Diego, Calif.

"There is no set time frame," adds Ted Bernstein, CEO, Life Insurance Concepts, Inc., a life insurance consulting and auditing firm in Boca Raton, Fla. "But insurance companies are motivated to pay as soon as possible after receiving bona fide proof of death, to avoid steep interest charges for delaying payment of claims."

Several situations can result in later payment of a claim. If the insured died within the first two years after the policy was issued, beneficiaries could face delays of six to 12 months. The reason: the two-year contestability clause, says Huntley. "Most policies contain this clause, which allows the carrier to investigate the original application to ensure fraud was not committed. As long as the insurance company cannot prove the insured lied on the application, the benefit will normally be paid," says Huntley. Most policies also contain a suicide clause that allows the company to deny benefits if the insured commits suicide during the first two years of the policy.

Another scenario that could delay payment, not surprisingly, is when "homicide" is listed as the cause of death on the death certificate. In this case, a claims representative may communicate with the detective assigned to the case to rule out the beneficiary as a suspect. "If the beneficiary is a suspect, the benefit will be held until charges are dropped or he/she is acquitted of the crime," says Huntley.

Since the inception of the industry more than 200 years ago, the payout to the beneficiary was always a lump-sum payment of the proceeds. The default payout option of most policies remains a lump sum, says Richard Reich, President, Intramark Insurance Services, Inc.

Modern life insurance policies have seen a monumental improvement in how payouts can be delivered to the policy's beneficiaries, says Bernstein. These included an installment-payout option, or an annuity option, in which the proceeds and accumulated interest are paid out regularly over the life of the beneficiary.

These choices give the policy owner the opportunity to select a pre-determined, guaranteed income stream of between 5 and 40 years. "For income-protection life insurance, most life insurance buyers prefer the installment option to guarantee the proceeds will last for the necessary number of years," says Bernstein.

Traditionally, life insurance policies only pay out at the time of the policy holder's death. "However, some life insurance companies have designed policies that allow their policyholders to draw against the face value of the policy in the event of a terminal, chronic or critical illness. These policies enable the policyholder to be the beneficiary of their own life insurance policy," says Bernstein.

The life insurance company should be contacted as soon as possible following the death of the insured to begin the claims process. The claims representative will request paperwork to process the claim.

The beneficiary of the insurance policy must obtain a certified copy of the death certificate. This can usually be obtained through the county in which the named insured dies. If the insured died in a hospital or nursing home, the institution may have completed the certificate, says Luke Brown, a retired insurance lawyer in Tallahassee, Fla., who operates YourProblemSolvers to help consumers with insurance, healthcare and consumer issues.

"The death certificate has to be submitted to the insurance company address listed in the policy along with a statement of claim, which is sometimes called a "request for benefits," signed by the beneficiary," says Brown.

Policies owned by revocable or irrevocable trusts must ensure that the insurance company has a copy of the trust document identifying the owner and the beneficiary, adds Bernstein.

Life insurance policies provide both policyholders and their loved ones' peace of mind that financial difficulties may be avoided in the event of a person's death. To expedite the claims process, and avoid errors and delays, Reich stresses that accuracy is essential when submitting any documentation or communicating with the life insurance company. "A person's life insurance agent can help make sure that the claim form is filled out correctly and help answer questions throughout the process," he says. (For more insight, read about how life insurance proceeds are taxed.)

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Life Insurance Policies: How Payouts Work

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Life insurance is a popular part of long-term financial planning. But to effectively incorporate this tool into your portfolio, you must understand how and when life insurance payouts are delivered to beneficiaries. This includes understanding how quickly benefits will be paid and designing the policy with the payout option that works best with your estate planning.