Premium rates are typically based on factors such as age, gender, height, weight, health status (including whether or not you use tobacco), and if you participate in high-risk activities or occupations.

Term insurance plans cover you for one or more years, and it pays a death benefit only if you die in that term. However, even if you don’t die within the term, you have not wasted more money than when you buy car insurance but never have an accident.

You have bought yourself peace of mind that your beneficiaries will receive the death benefit if you should die within the term. Term policies typically offer the lowest monthly premium. They are usually the best option if you have a limited budget or a temporary need. You can renew term policies for one or more terms even if your health has changed. However, each time you do so, the premium may be higher.

There are four kinds of term policies:

In level-term policies, the death benefit amount will remain the same for the entire term. Depending on the policy, your premiums may be level or increase over the term.

Decreasing term policies have a death benefit that decreases over the term. Your premium will typically remain the same throughout the term. People who purchase decreasing term policies usually have financial obligations that decrease over time (such as mortgage payments or loans).

Annual renewable term policies have a death benefit that remains the same throughout the term, but a premium that increases each year as you age.

Convertible term policies allow you to convert the policy into a permanent policy, typically without a medical exam or further underwriting. Generally, this does increase your premium payment and must be done before you reach age 65.

Would you buy a cat in a bag without checking it first? After all, insurers are on the hook for millions if you die soon after getting the policy. They increase their odds by conducting an exam and deciding how risky you are to insure. Additionally, they make sure not to insure the unqualified individuals who may have a terminal illness or otherwise are likely to die soon. NOT ALL CARRIERS REQUIRE AN EXAM.

In insurance lingo, brokers refer to this question as part of the financial underwriting process. The amount of coverage you can buy must reflect your economic value. Calculating your assets and liabilities are a few ways to justify the requested face amount.

However, most companies follow this simple formula: the younger an applicant is, the more coverage he needs because the children are still young, the mortgage balance is still outstanding, so passing away in these critical times could devastate the beneficiaries.

Nevertheless, once the applicant is older and has fewer liabilities to protect (children are older, the mortgage is paid off), they will qualify for less coverage.

Here is a basic formula to estimate the maximum coverage you can receive:

Up to age 40: You can buy 35 times your yearly income.

41–50: You can buy 25 times your yearly income.

51–60: You can buy 20 times your yearly income.

61–70: You can buy 10 times your yearly income.

71–80: You can buy 5 times your yearly income.

Nice try! You probably know that smokers pay twice as much as non-smokers, but this trick wouldn’t work. To get the best non-smoker rate, you must abstain from tobacco for three to five years (each company has a different underwriting guideline).

Some companies will give you a standard non-smoker rate after one year of abstinence. It’s worth mentioning that you should never lie about your smoking habits to the insurer.