Age is an important factor when it comes to pricing life insurance, because let’s face it, the older you are the higher the chance you may become sick or die. There are limitations on the age that a person can take out a policy, but as people continue to live longer, some insurers have increased their insurable ages up to the age of 90 or 95.
In general, the cut-off to obtain life insurance is age 65, but over the years, insurance companies have had to adjust for decreased mortality rates. The CIA’s World Fact Book indicates that the current average life expectancy for both genders in the United States is 78 years and 11 months. While in the early 18th and 20th centuries, life expectancy averaged 30 to 45 years of age worldwide, according to the World Health Organization.
Traditionally, the lack of demand for insurance for people over the age of 70 or 75 was directly related to a number of factors, notes Edward E. Graves, author of “McGill’s Life Insurance.” The high cost of insurance (because the older you are the more expensive the policy), an inability to satisfy the medical requirements on the application, and the limited need for new insurance for people in this age bracket all added to a decreased demand, says Graves.
Life insurance for children
Critics have long held opinions about why someone might insure a child, but there are benefits to taking out this type of insurance that most may not consider.
It is not unheard of for an insurance company to write a policy on the life of a child just a few weeks old, and a large volume of juvenile insurance applications are often sought to minimize the possibility of adverse selection, notes Graves.
For one, the amounts of coverage provided by a juvenile insurance policy is far less than the amounts available to adults, though most companies must first see that the amount of children’s life insurance is needed if other family members also have an insurance policy in force. Graves points to the fact that children also have a low mortality rate, which is attractive for insurance companies. Also, the death rate is usually very low until the age of 10, with exception to the first weeks after birth. This period of high mortality can be avoided by limiting coverage to children who are 6 months or older.
But according to David Fier, vice president with Gerber Life Insurance Company, the majority of parents and grandparents who purchase life insurance for their children don’t intend to use it for the death benefit.
“It’s primarily used as a gift for their child,” Fier says. “A whole life policy builds cash value, has a lot of benefits, and gives the child the option to purchase more coverage or cash it in when they turn 21. It’s really an affordable way for them to put money aside for their child’s future.”
The largest policy Gerber Life offers is $50,000, which would have a premium of $20 per month. However, the average policy purchased for a child is $20,000 to $25,000, which would cost about $10 per month. Policies are usually purchased for children before they reach the age of 2.
“It’s important to understand why people do it,” Fier says. “It’s a fairly inexpensive way for people with limited means to prepare for their child’s future. Once the child grows up, it guarantees them insurable and the premiums will never increase unless they decide to get more coverage.”
Although medical exams are not required for juvenile insurance, family finances are required because economic status generally has an influence on mortality in children.