What’s Age Got To Do With It?

I often hear to comment from clients that “they should do this before they turn 50 or 55 or 60” because they have heard the urban myth that at certain ages life insurance rates take an obnoxious jump, a way to offset all the benefits we get from our beloved AARP.

I would be the last to say don’t worry about age because rates absolutely go up with age, but it is a gradual curve through the years, not an extreme punishment for any particular birthday. And keep in mind that this is just for a new policy. If you have a guaranteed, locked in rate, you’ve beat the aging process.

One possible birthplace of this myth is folks that have 5 year renewable term or in some cases 10 year renewable term. I wrote a post about AARP’s term insurance products not long ago, and if you take the numbers from that I can see why it might lead you to believe that certain ages are definitely not your friend. For instance, with AARP, if I take out $50,000 of 5 year renewable term at age 59 I actually pay the same rate as I would have at age 55, $74.58 per month. Of course you wouldn’t know that because why would you run rates for 55 if you’re 59? Since their product changes at ages versus anniversaries when I turn 60 my rate goes up to $108.65 per month and you go, “Wow, 60 must be the age where life insurance takes a giant leap.”

But, not true. Just a quick sample will kind of give you the scene. We’ll assume I buy $100,000 of 20 year term starting at age 50 and that I am a standard rate risk. Of course those rates are locked for 20 years, but let’s see what it would cost given the same parameters at 56, 57, 58 and so on.

At 50 the rate is $36.34
51 is $40.08
52 is $43.67
53 is $48.20
54 is $53.53
55 is $58.36 (compare to AARP $50k rate guaranteed for 5 years, blah!!!!! on AARP)
56 is $62.26
57 is $66.13
58 is $71.55
59 is $79.89
60 is $91.85
61 is $104.04
62 is $116.03
63 is $128.19
64 is $136.94 and
65 is $145.69

There was a little larger bump at age 60, but keep in mind that we were using a 20 year guaranteed level term insurance product. Unlike a 5 or a 10 year guaranteed term, with those rates there is no opportunity to raise your rates for 20 years and at age 60 that 20 years is guaranteeing your rate past average mortality. You would not have seen that bump on a 10 or 15 year term. Even given that, the bump isn’t significant.

Bottom line. Age absolutely affects life insurance rates, but there is no magic age. Buy life insurance when you need it, not when you think you need to because it might cost more next year. Truth is with the reversal in the trend of downward term insurance rates, better buy now if you want the best rate.