How to calculate the cost of term life insurance

Are you considering buying term life insurance? Read on for help estimating how much coverage you need and to learn how your premiums are determined.

How much life insurance do I need?

If you want to know how much your coverage will cost, this is a good place to start. While there are a host of factors that affect pricing, the size of your policy (the amount of protection you get) is one of the most important. 

 So how do you know how much term protection you need? It usually depends on where you are in life and how many people you support financially. For example: If you are just starting a family, you’ll probably want enough coverage to replace several years of your salary so that your loved ones will remain financially secure. Later in life, when your kids are grown and your house is paid for, you may want to reassess the amount of life insurance you have, focusing on final expenses and other obligations, like outstanding debt.

Are there formulas I can use to calculate my needs?

While a financial professional can give you a more precise estimate, here are a few ways to get a ballpark figure: 

• Simply take your annual salary and multiply by eight.
• Multiply your annual income by the number of years until retirement.
• Add up your family’s annual expenses, such as housing, utilities, transportation, and food, and divide them by 0.07. That should produce a benefit large enough that the growth and earnings can pay all ongoing expenses.

How do I estimate the cost of term life insurance?

Along with the amount of coverage you request, the cost of life insurance is based on several key factors: 

Age – In general, life insurance is less expensive when you’re younger. That’s why it often makes sense to purchase coverage as soon as you can. And if you want to lock that price in, you may want to select a policy that keeps your premiums level (won’t increase) for set number of years. 

Health – The healthier you are, the less you could potentially pay for life insurance coverage. People who don’t smoke, who exercise regularly, manage their weight, and don’t have a lot of pre-existing health conditions (like high blood pressure) will generally receive lower premiums than others their age. 

Gender – Since women typically live longer than men, they often pay less for the same amount of coverage. 

Lifestyle – If you have a dangerous profession or hobby (like skydiving), you may have to pay higher rates since the risk to your life is greater.

Duration of coverage (term): The premiums of a policy with a shorter term (10 years) will be lower than the premiums for a policy with a longer term (15 or 20 years). Just remember that your premiums will go up each time you renew your coverage, so a long-term policy could be more cost-effective.

How often will my premiums increase?

With term life insurance, the amount of time your premiums remain level (stay the same) is usually linked to the duration of your coverage. That means policies with shorter durations (terms) will increase in price more rapidly than those with longer terms. For example, compare these two policies from New York Life: 

•  Yearly renewable term
  Coverage lasts a year and can be renewed annually. Since the premiums will increase with each renewal, this policy is best for those who need insurance for a limited time or who plan to convert^{^} to a permanent policy within a few years.

• Level premium term
  While your premiums may start out a little higher, you can lock them in for 10, 15, or 20 years. Since the price will not go up during this time, your overall cost will ultimately be lower than if you used yearly renewable term for the same amount of time.

What else can affect the cost of my coverage?

Some companies allow you to customize your policy more than others. In most cases, that means adding riders that may—or may not—be included in the price. Here are just a few that our company offers:

• Spouse's Paid-Up Insurance Purchase Option Rider¹
  With this rider, your spouse, as the beneficiary, can use the proceeds from your policy, in the event of your passing, to get paid-up insurance without a medical exam. This rider is automatically included in most New York Life policies.

• Disability Waiver of Premium Ride
  If you become disabled, New York Life will cover your premiums with this rider, which is available at an additional cost.

• Living Benefits Rider²
  This rider allows you to use a portion of your death benefit to pay for treatment or care if you are terminally ill.

With term life insurance, it’s easy to give your loved ones a strong financial foundation. If you’d like to get an exact quote and see just how much coverage you can afford, be sure to talk to a New York Life financial professional.

Term life insurance FAQs

¹Rider Insured’s Paid-Up Insurance Purchase Option in New York.

²Not available in every state. There is a cost to exercise this rider. Products and riders are available in approved jurisdictions, and names and features may vary.

 ^{^}Term conversion guidelines and limitations, such as timing, may apply; for example, there may be a ten-year conversion privilege for some products and a five-year conversion privilege for others. See the product fact sheet or speak to your agent for more details.

For select riders, the condition applies to the insured. See the product and rider fact sheets for details. In most jurisdictions, the form numbers are: Yearly Renewable Term (ICC22423-135P); Level Term (ICC22423-60P); Living Benefits Rider (ICC22423-498R); Spouse’s Paid-up Insurance Purchase Option (In New York, “Rider Insured’s Paid-Up Insurance Purchase Option”) (ICC22423-375R); Disability Waiver of Premium Rider (ICC22423-235R); State variations may apply.

Term life insurance is issued by NYLIFE Insurance Company of Arizona (NYLAZ), a wholly owned subsidiary of New York Life Insurance Company (NYLIC), except in New York, where it is issued by NYLIC. NYLAZ is not authorized in New York and does not conduct insurance business in that state.