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Key factors that affect life insurance pricing

Life Insurance and Annuities
by Tim DeMars
Cupped hands holding a paper cut-out in the shape of a family
Cupped hands holding a paper cut-out in the shape of a family

In the world of life insurance, pricing is one of the most important factors in the industry. What goes into the product price and how can insurance companies control the risk that surrounds it? The external marketplace and economic conditions that impact the price of insurance premiums are a constant concern.

Let's take a look at the modern landscape of product development and pricing and what we can expect from the future.

Average pricing for life insurance

The price of life insurance depends on several factors that the insurance company or actuary analyzes to determine the premium. The current pricing of this kind of insurance product is still reacting to the public health crisis and shifting economic landscape that the nation is experiencing beginning in 2020.

According to information gathered from Quotacy, a healthy 40-year-old male non-smoker would pay about $28 a month for a premium. This data is based on a 20-year $500,000 term life policy. Other types of life insurance could vary on average. Keep in mind that pricing also changes depending on the kind of life insurance coverage, including:

  • Term life insurance
  • Whole life insurance
  • Universal life insurance
  • Variable life insurance
  • Survivorship or joint life insurance

It's also important to note that life insurance prices and average cost change depending on several factors, including gender. For example, a healthy 40-year-old male non-smoker would pay a $28.42 monthly premium for a 20-year $500,000 term life policy while a healthy 40-year-old female non-smoker would pay $24.02 for the same term life policy. There are other factors that impact life insurance pricing in similar ways. Let's learn more about how a life insurance premium works.

Factors that impact pricing

For insurers, pricing is a delicate balancing act that takes into account risk assessment for the insurance company and customer service for the policyholder. Each policy's average price varies depending on the life insurance policy, the current marketplace, and the individual who has the product.


The underwriting process will help the insurers price the product properly in order to protect themselves from loss and risk. Underwriting classifications for life insurance is another way of stating and determining the applicant's health status. Here are the examples of the main life insurance classifications:

  • Underwriting classifications (Gender and Smoking Classes)
  • Preferred Risk Class
  • Standard Risk Class
  • Substandard Table Rating

Keep in mind that insurers manage their risk by taking a look at the policyholder's expected lifespan.


One of the most important things that insurers evaluate when pricing life insurance products is the age of the policyholder. As a general rule, younger people should expect to pay less for their life insurance policy because they are likely to live longer than older people. As the owner of the policy ages, their life expectancy goes down, which means that the likelihood of the insurance company having to issue a payout increases. This strategy works to help insurers manage their expected risk while still having the funds to pay out when the time comes. 


We already briefly touched on the impact that the policyholder's gender has on the price of a life insurance policy, but it's another factor that insurers use to set the premium for their product.  Most data reveals that women have a longer life expectancy than men, which is why a female's life insurance premium is likely to be less expensive than their male counterpart. In America, data shows that the average life expectancy for a woman is 79 years while men are expected to live to be 73.2 years old on average.


Because life expectancy is so important to insurers when setting a premium, health is an obvious factor. The better the policyholder's health, the longer they are likely to live which is good for the insurance company in the long run. The insurer will evaluate certain things to set term life insurance rates: 

  • Pre-existing medical condition
  • Blood pressure
  • Cholesterol levels
  • Height and weight

Unlike health insurance, life insurance can use these factors to set a unique premium for the policyholder in order to protect themselves against dangerous risks.

Medical history

Similar to the health evaluation that the policyholder must undergo, the insurer will take a look at the medical history of the applicant. This could give the insurance company insurance insight into what the customer's future health may look like. For example, if the policyholder has a history of heart attacks, this could negatively affect their pricing, making it more expensive to insure in the long run. On the other hand, if the applicant has a spotless medical history, their policy price could be more affordable because they pose a smaller risk.


Life insurance companies should take a serious look into the policyholder's lifestyle in order to get a better picture of their potential life expectancy. If one applicant smokes cigarettes and is overweight, their chances of having health issues are higher. Because of this, the insurance company will probably have to price their policy higher in order to protect themselves from losing money.


Insurers will evaluate how risky and dangerous a policyholder's job is to determine the price of their life insurance policy. A hazardous job has the high potential to increase the potential of a customer's health failing. High-risk jobs that increase life insurance rates might include:

  • Firefighters
  • Deep sea fishermen
  • Miners
  • Construction workers
  • Aviation jobs

There are other high-risk jobs, but actuarial science can help determine which careers pose the most risk to the insurance company as a whole.

Driving record

Life insurance policies also take into account the policyholder's driving record because it may impact their long-term health. For example, someone who has a history of driving under the influence or driving while intoxicated will have to pay more for their life insurance premium.

Life insurance companies often rely on their own data and seek assistance from actuaries to help find high-risk applicants.

Predicting pricing and economic factors

As anyone in the insurance industry knows, predictive modeling and forecasting can help with product pricing and monthly rates. Instead of being reactionary and changing things up when economic factors change, it's best to be ahead of the curve and the competition.

With the right predictive measures in place, the life insurance company may recommend specific types of life insurance coverage. Whichever kind of life insurance policy the holder owns will impact the overall premium price. For example, guaranteed issue life insurance policies make it so that the insurance company can't deny an applicant coverage amount because of their health. This ensures that even those with poor health can get life insurance. However, the underwriters may find that the policy premium would be higher than a more healthy person's.

How to protect against risk

When it comes to protecting and managing risk with life insurance, insurers don't have to do it alone. Actuaries like Lewis & Ellis have the tools available to help price the life insurance product correctly. For example, we offer appraisals and projected cash flow that helps manage risk factors present when selling life insurance. In addition, Lewis & Ellis can assist with portfolio and term life insurance management. This means that our insurance experts can help define specific strategies to reduce future premium outlay and identify those life insurance policies with the highest return to the portfolio.

Are you ready to learn more about life insurance, risk management and actuarial assistance? Reach out to Lewis & Ellis today.



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