The two main types of life insurance are term and permanent. Term life has an expiration date and is less costly, while permanent life doesn’t expire but has a higher price tag.
How much life insurance do I need?
Life insurance can replace your income and provide a financial safety net for your family if you die. To decide how much life insurance coverage to buy, consider future expenses. That includes your mortgage, outstanding bills, college tuition, funeral costs, childcare and more. To calculate how much life insurance you need, here are some considerations:
- Start with an estimate of five years of income replacement. So, if your income is $100,000, it’s wise to buy at least $500,000 of life insurance.
- Consider debts and regular expenses like childcare, especially if you are the primary caregiver.
- 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.
- The average funeral cost is $8,000; be sure to allow for the type of funeral you want.
Once you figure out those costs, you’re able to get a better idea of how much life insurance you should buy. A life insurance calculator can make this easier.
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 since it is guaranteed to pay out as long as the premiums are paid. Permanent life also includes cash value that can be accessed during your lifetime.
Term life insurance
Term life insurance covers you for a specific period of time, 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. Terms range between five and 30 years, and the longer the term, the more expensive the premiums. However, term life overall is cheaper than permanent life.
Final expense insurance
Final expense insurance is a type of permanent life insurance policy that provides a small death benefit at a low cost. As the name suggests, its meant to pay funeral costs and related expenses. It may also be called burial insurance or funeral insurance. These policies are easy to qualify for and often marketed to older people looking to keep their final expenses from burdening their family.
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How does life insurance work?
Life insurance pays a death benefit when you die. As long as you pay the premiums and die while the policy is in force, your beneficiary will pay the amount you choose.
What are the different types of permanent life insurance?
Permanent life insurance is available in several forms. 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 common 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. You can increase or decrease premiums and the death benefit based on your changing needs.
- 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 life. However, you may outlive your policy, and the insurer won’t have to pay a death benefit. You can usually 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.
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 without a new health exam or application. The insurer may allow this as you’re approaching the end of your term life. However, insurers also usually only offer conversions up to age 65. The later you convert your term life, the likelier you’ll pay higher premiums, as your age is considered.
How can you find out 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.
- Seek canceled checks and credit card statements to see if you can any written to a life insurance company.
- Review probate court records.
- Contact the person’s employer to see if they 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 you paid.
What is instant approval term life insurance?
Some 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.
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 may not be enough coverage, and you may lose it when you change jobs. It’s a good idea to get your own permanent life or term life policy even if you have 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 do smoking and your health affect 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.
Life Insurance Calculator
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 any 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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Read Our Latest Articles on Life Insurance
The life insurance beneficiary is the person who benefits financially from a life insurance policy paying out. While many people only have one life insurance beneficiary on their policy, most likely a spouse, you can name multiple people or even an organization as beneficiaries.
Both term life and whole life insurance can be valuable forms of coverage. However, it is important to choose the right policy for your needs.
The most affordable life insurance option is term life insurance, which is available for less than $10 a month for $100,000 in coverage.