What Determines the Cost of Insurance?

Age

• Age is one of the biggest drivers of cost.
• The younger you are when you apply, the lower your premiums will usually be.
• As you get older, the chance of a claim increases, so premiums rise.
• Example: A healthy 30-year-old may pay a fraction of the cost that a 50-year-old would pay for the same coverage.

Health

• Insurers review your current health, medical history, and in some cases your family's health history.
• Conditions such as diabetes, heart disease, or high blood pressure can lead to higher premiums.
• In many cases, you will need to complete a health questionnaire, and sometimes a medical exam or lab work.
• Smoking status has one of the largest impacts. In Canada, smokers often pay double or more compared to non-smokers for the same coverage.

Lifestyle and Occupation

• Activities such as skydiving, scuba diving, or high-risk sports can affect cost.
• Occupations with higher risk (e.g., construction, aviation, mining) may also increase premiums.
• Insurers may also consider alcohol consumption, driving record, and other lifestyle factors.

Type and Amount of Coverage

• Term Life Insurance is usually the most affordable option, designed for temporary needs.
• Permanent Life Insurance (whole life or universal life) costs more because coverage lasts a lifetime and may include a savings component.
• The higher the coverage amount, the higher the premium.
• Example: $1 million of coverage costs more than $250,000, but the cost per dollar of coverage is often lower at higher amounts.

Policy Features and Add-Ons

• Adding riders, such as accidental death coverage, disability premium waivers, or child coverage, increases the premium.
• Choosing guaranteed level premiums or policies with shorter pay periods (e.g., “paid up” after 20 years) can also change pricing.

Premium Structures: Level vs. Increasing

• Level premiums: Stay the same for the duration of the term or for life, making them predictable and easier to budget for.
• Renewable or increasing premiums: Start lower but rise significantly when the policy renews (for example, at the end of a 10-year term). These can look attractive at first but may become costly later.

Balancing Cost and Protection

When considering cost, it's important to focus not only on affordability today but also on how long you'll need the coverage. Many people find that a combination of policies works best:

• Term insurance for large, short- to medium-term needs (such as paying off a mortgage or providing for young children).
• Permanent insurance for long-term needs like estate planning, final expenses, or creating a legacy.

Regularly reviewing your coverage as life changes, such as marriage, children, buying a home, or nearing retirement, helps ensure your insurance stays affordable and aligned with your goals.