You've Been Warned: Buying Life Insurance At This Age Will Cost You

Taking out a life insurance policy can be a great way to make sure your loved ones are taken care of. A common financial mistake is buying life insurance later in life — in your 50s or 60s — as a way to leave something for your dependents. Unfortunately, waiting this long to take out a life insurance policy can severely impact how much you spend on it.

Insurance companies base the decision to insure on how much of a risk the applicant poses. For life insurance policies, the risk is determined by factors like your current health status, individual and family medical history, occupation, and age. Age, in particular, is a major consideration because the older you are, the more likely you are to deal with age-related health complications.

Statistical life expectancies don't mean much to the individual, but they can mean a lot to insurance providers. According to the National Center for Health Statistics, the average life expectancy in the United States is 78.4 years; more specifically, 75.8 years for males and 81.1 years for females. So, applicants in their 70s are considered a much more significant risk to insure. As a way to mitigate this risk, insurance companies adjust premium pricing so that rates increase as a person ages. The result is that applicants in their late 50s or 60s tend to pay a lot more in insurance premiums than younger people. 

Life insurance prices also climb faster the older you get. A 25-year-old's premium might not be much smaller than a 35-year-old's, but what someone pays at 40 can be a lot less than what they'd pay in their 50s or 60s. With each year you procrastinate buying life insurance, the price you're likely to pay for your policy will continue to climb.

MoneyGeek estimates that a 25-year-old man can buy a $500,000 20-year term life insurance policy for an average of $34 per month, while a 55-year-old would pay $201 for the same coverage. Over those 20 years, the older applicant would pay over $48,000 — about $40,000 more than he would have at the best age to buy life insurance. 

Waiting also narrows your options. Younger buyers often qualify for terms as long as 30 years. At 55, signing up for a longer policy could be difficult. An insurance company might be less inclined to insure you for that long, and it will probably be more expensive than a shorter-term policy. Conditions like diabetes also become more common with age, pushing applicants higher up in risk class and increasing their premiums. 

That said, there are still options for older people who want life insurance. Many insurers offer guaranteed issue life insurance policies that cover applicants regardless of medical history or age. These policies are usually designed to cover funeral costs and small debts.