The cost of life insurance is dictated by a complicated set of equations and algorithms. Actuaries, the individuals who specialize in crafting insurance policies, must submit to years of education and training. Since the typical life insurance company issues hundreds or thousands of policies per year, even a subtle actuarial mistake can be ruinous when it's repeated dozens of times.
In the past, term life insurance companies calculated the risk of a given policyholder dying within the time frame specified by his or her policy using sweeping equations that mostly accounted for age and gender. In other words, a 50-year-old slaughterhouse employee who used tobacco and rode a motorcycle on the weekends would pay the same for his policy as a 50-year-old female homemaker who didn't smoke and rarely traveled.
Although this may be an extreme case, it illustrates a broader point. The first policyholder is far more likely to die within a specified time frame than the second. While it's possible that a freak accident or illness could afflict the homemaker even as the slaughterhouse worker remained healthy into his golden years, this is an unlikely outcome.
Over the past few decades, actuaries have radically revised their methodology
to account for more subtle risk factors. They have devised broad classifications for potential policyholders and now use a number of "triggers" to determine the probability of a given policyholder passing away while their policy remains in force.
The four broad categories of life insurance policyholders are known as "super premium," "premium," "standard" and "tobacco." Unless there are certain mitigating factors, policyholders rated as "super premium" can expect to pay far less for life insurance than those rated as "tobacco." This should make sense: The former tend to be healthy, fit and free of pre-existing medical problems while the latter tend to experience higher rates of illness and death over the long term.
Other factors affect the cost of life insurance as well. Occupational hazards are a major issue: Even "super premium" and "premium" policyholders who work in dangerous industries like resource extraction and trucking may have to pay through the nose for coverage. Individuals who travel frequently may also pay more for life insurance. While it's difficult to generalize about the cost of a specific policy, a 10-year term life plan with a death benefit of $1,000,000 could cost about $400 per year when issued to a healthy 30-year-old.