Life insurance companies assess your risks when deciding whether to insure you and how much to charge. They use a wide range of factors to evaluate the risk -- especially for a term life insurance policy.
How much life insurance do I need?
Life insurance should replace your income if the unthinkable happens. When figuring out what you need for life insurance coverage, consider your future costs. That includes your mortgage, outstanding bills, children’s college, funeral costs, childcare, and other costs that your loved ones will have. When gauging how much you need, here are some costs to think about:
- Estimate for at least five years of income replacement. So, if your income is $100,000, it’s wise to buy at least $500,000 of life insurance just for income replacement.
- Provide enough funds so that they can pay the mortgage and any regular costs like childcare. If you’re the primary caregiver, you’ll still want a policy to help pay for childcare.
- The average annual cost of tuition and fees is about $35,000 for private colleges, close to $10,000 for in-state students at public colleges, and approximately $26,000 for out-of-state students at state universities. Remember to times whatever number you choose by at least four to represent four years of college.
- The average funeral costs are more than $8,000. Add money to your policy to handle those costs and remember that funeral costs increase annually.
Once you figure out those costs, you’re able to get a better gauge of what your loved ones will need.
Types of life insurance
Permanent Life Insurance
Permanent life insurance provides coverage for life - no matter how long you live. You have coverage as long as you make your premium payments. Permanent life is usually more expensive and offers lower death benefits than term life, but you’re guaranteed that your loved ones will get a death benefit. Permanent life also provides cash value. You can borrow from your policy, but you should only tap into it for a one-time emergency. Your policy will also lose that money, and you’ll get penalized.
Term Life Insurance
Term life insurance offers coverage for limited years and doesn’t have any cash value. Unlike permanent life, you can’t tap into it while you’re alive unless you have a rider, such as a critical illness or chronic disease rider. Those riders let you take out more from your policy to help pay for care. Term life policies could be five years or as much as 30 years. You’ll likely pay more for term life depending on your age and length of the policy.
Final Expenses Insurance
Final expenses insurance is a lower cost alternative to permanent and term life. As the name suggests, the coverage handles your final expenses, such as the cost of your funeral. The coverage is also known as burial insurance or funeral insurance. You shouldn’t view a final expenses policy as a way to provide for your loved ones in the long run. Instead, it’s merely meant to pay for your funeral and other final expenses.
I want to learn more about Life Insurance.
How does life insurance work?
Life insurance offers a death benefit that helps your loved ones when you die. The two major types of life insurance are permanent and term life insurance. Term life is for a specific number of years. Permanent life guarantees you a death benefit no matter when you die as long as you pay the premiums.
What are the different types of permanent life insurance?
Permanent life insurance offers multiple options. Which type is best for you depends on what you want from your policy and how much flexibility you want. The four types of permanent life insurance are:
- Whole life insurance is the most popular type of permanent life. You get a guaranteed benefit, a consistent premium, and earnings on your cash value.
- Universal life allows you to change your premium payments. That lets you increase or decrease premiums based on your financial situation at the moment.
- Variable life lets you invest policy premiums and is riskier than other types of permanent life. Your death benefit is based on how your investments perform.
- Variable universal life insurance is a combination of variable and universal life. You can vary payments, invest in premiums, and change coverage amount.
What is the difference between whole life and term life insurance?
Whole life is a type of permanent life insurance. You’re guaranteed a death benefit and the policies have a cash value. That allows you to tap into them if needed. Meanwhile, term life insurance is for a limited number of years, such as 20 or 30 years. Term life is usually more affordable than whole live. However, you may outlive your policy, and the insurer won’t have to pay a death benefit. You could try to convert your term life policy to permanent life as you near the end of the period.
What riders can you add to your term life insurance policy?
Riders are a way to get additional coverage on term life. Common types of riders are:
- Long-term care
- Accelerated death benefit
- Critical illness rider
- accidental death and dismemberment
- Critical illness and chronic illness, which lets policyholders tap into their policies.
These add-ons can help you in ways beyond a death benefit. Riders add to the cost of your policy, but also add additional benefits.
How can you convert a term life policy to a permanent policy?
Many term life policies let you convert the entire term policy or a portion to permanent life. The insurer may allow this as you’re approaching the end of your term life. However, insurers also usually limit conversions to people before they turn 65. The later that you convert your term life, the likelier you’ll pay higher premiums.
How to find if a life insurance policy exists?
Finding a loved one’s life insurance policy isn’t always easy. That’s why it’s critical for family members to communicate about policies while they’re still alive. You don’t have to tell your loved ones what they might receive. Just let them know where to find the policy. If you need to find a policy, there are a few avenues:
- Contact other family members and the person’s lawyer, banker or accountant. They might know more about a policy.
- Seek canceled checks and credit card statements to see if you can find the company.
- Review probate court records if the estate goes through the court.
- Contact the person’s employer to see if the loved one had a group life insurance plan.
- Check with the state's insurance regulator.
- If those actions don’t work, notify the MIB, which maintains a database of life, health and disability applications for seven years. Record searches can be requested through the MIB and cost $75.
What is return of premium life insurance?
Return of premium life insurance is a term life policy that gives you back your premiums if you outlive your policy. This coverage is much more expensive than regular term life insurance.However, it offers peace of mind that you’ll get back the money if you outlive your term life policy.
What is instant approval term life insurance?
Life insurance companies offer instant approval. These policies don’t require a medical exam. You might not even have to answer questions about your medical history. This coverage could be the only option for someone in poor health. Instant approval term life is more expensive and offers lower payouts than regular term life insurance. So, it’s better to go through a regular life insurance process, but if that’s not possible, instant approval term life is an option.
What is group life insurance?
Group life insurance is coverage you get through an employer or association. Employers may offer coverage for free or for a low premium. Group life insurance is usually not enough coverage, and you lose it when you change jobs. It’s a good idea to get your own permanent life or term life policy even if you get group life coverage.
What is accidental death and dismemberment insurance?
AD&D insurance pays you and beneficiaries if an accident caused your death or dismemberment. Many companies offer this coverage for free. You shouldn’t think of AD&D insurance as a replacement for life insurance. There are restrictions on when an insurer will pay out. Also, life insurance policies often offer an accidental death rider, which increases the death benefit if you die in an accident.
How smoking and your health affects life insurance rates?
Smokers pay double or triple what nonsmokers pay for life insurance. Being in poor health also leads to higher premiums and may limit your life insurance options. See more about how smoking and health status affects rates below.
How do gender and age affect life insurance rates?
The older you are, the more you’ll likely pay for life insurance. This is especially true for term life insurance. If you’re 30 and take out a 20-year-old policy, you’ll pay much less than someone who’s 50. Gender also influences rates. Men usually pay higher rates because they typically don’t live as long as women, take more risks, and work in more dangerous professions.
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How Much Life Insurance Do I Need?
How much does life insurance cost?
Life insurance costs vary by type of plan, your age, your gender, your health status, and many other factors, including the riders. Some of the costs you have no control over. However, you can work to improve your health and quit smoking. Those actions can help reduce rates. Here are the average term life insurance costs for multiple categories:
Annual premiums for $500,000 term life policy
| 10 Years | 20 Years | 30 Years | |
|---|---|---|---|
| 30-year-old nonsmoker in excellent health | $270 | $352 | $514 |
| 30-year-old nonsmoker in regular health | $355 | $463 | $689 |
| 30-year-old smoker in regular health | $743 | $998 | $1,591 |
| 40-year-old nonsmoker in excellent health | $386 | $567 | $858 |
| 40-year-old nonsmoker in regular health | $524 | $769 | $1,169 |
| 40-year-old smoker in regular health | $1,261 | $1,973 | $2,973 |
| 50-year-old nonsmoker in excellent health | $775 | $1,215 | $2,064 |
| 50-year-old nonsmoker in regular health | $1,054 | $1,651 | $2,825 |
| 50-year-old smoker in regular health | $2,708 | $4,265 | $6,820 |
| 60-year-old nonsmoker in excellent health | $1,547 | $2,889 | N/A |
| 60-year-old nonsmoker in regular health | $2,059 | $3,860 | N/A |
| 60-year-old smoker in regular health | $5,384 | $9,005 | N/A |
| 10 Years | 20 Years | 30 Years | |
|---|---|---|---|
| 30-year-old nonsmoker in excellent health | $318 | $421 | $640 |
| 30-year-old nonsmoker in regular health | $430 | $558 | $874 |
| 30-year-old smoker in regular health | $955 | $1,284 | $2,084 |
| 40-year-old nonsmoker in excellent health | $435 | $646 | $1,037 |
| 40-year-old nonsmoker in regular health | $605 | $886 | $1,430 |
| 40-year-old smoker in regular health | $1,526 | $2,397 | $3,796 |
| 50-year-old nonsmoker in excellent health | $932 | $1,507 | $2,610 |
| 50-year-old nonsmoker in regular health | $1,305 | $2,043 | $3,537 |
| 50-year-old smoker in regular health | $3,539 | $5,631 | $8,240 |
| 60-year-old nonsmoker in excellent health | $2,243 | $4,104 | N/A |
| 60-year-old nonsmoker in regular health | $3,035 | $5,524 | N/A |
| 60-year-old smoker in regular health | $7,963 | $13,015 | N/A |
Average annual premiums for $1 million term life policies in California
| 10 Years | 20 Years | 30 Years | |
|---|---|---|---|
| 30-year-old nonsmoker in excellent health | $427 | $568 | $905 |
| 40-year-old nonsmoker in excellent health | $624 | $973 | $1,467 |
| 50-year-old nonsmoker in excellent health | $1,346 | $2,170 | $3,541 |
| 60-year-old nonsmoker in excellent health | $2,922 | $5,572 | N/A |
| 10 Years | 20 Years | 30 Years | |
|---|---|---|---|
| 30-year-old nonsmoker in excellent health | $520 | $731 | $1,138 |
| 40-year-old nonsmoker in excellent health | $744 | $1,178 | $1,878 |
| 50-year-old nonsmoker in excellent health | $1,711 | $2,899 | $4,880 |
| 60-year-old nonsmoker in excellent health | $4,242 | $7,924 | N/A |
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