Figuring out how much your life insurance will cost can be a daunting task. But there are ways to make it easier. Whether you want term or permanent insurance, there are a number of factors that will impact the cost of your policy. The good news is that you can take these into consideration before you buy a policy to get the best deal for you.
What is Life Insurance?
Life insurance refers to a contract or an agreement between the policyholder and the insurance company that helps provide life-long coverage and support for a specified amount of coverage in case the insured individual dies during the term of their policy. The cash benefits that are paid out after the death of the insured person help cover funeral costs and other financial obligations such as outstanding debts, mortgages, and reimbursements to dependents.
What are the Main Types of Life Insurance?
There are different kinds of life insurance, some are for death benefits while others offer a combination of principal and death. The two main types of life insurance are whole life/permanent insurance and term insurance.
Term insurance generally costs less than whole life insurance. Also, its premium stays the same for a fixed duration of time. It can be used to provide coverage for expenses that come up in the future. What happens to your family when you die is another concern you might face. Term insurance helps you cover these expenses as it provides an income until they are able to get back on their feet.
Permanent/Whole Life Insurance
Permanent, or whole life insurance (often referred to as cash value insurance), provides protection for a lifetime while also allowing you to build equity, get a loan, and name beneficiaries. (It may also provide other opportunities to reduce the cost of insurance.)
How Do You Calculate Your Life Insurance?
As suggested by the financial advisers at PolicyAdvisor.com and other reputable insurance companies, a logical sum for life insurance should be six to 10 times the amount of your salary per annum. Another approach to figure the measure of life coverage required is to increase your yearly compensation by the number of years left until retirement.
What are the Factors that Will Influence How Much Life Insurance Will Cost?
You should know that if you have a lot of debts, the life insurance policy will cost more. The reason for this is because when you pass away, your family will have to pay for these debts. They would also be less likely to pay off the debts in full since they just lost their breadwinner.
While there is no sure formula, there are several factors that directly influence the cost of your policy. The most significant factor is family size. If you have a spouse and young children, protecting them from financial burdens after you pass away is more expensive than if only one spouse or child remained to be protected. The costs of the policy increase with each dependent, based on their age and any pre-existing conditions, such as diabetes.
A major component of how much life insurance will cost is dependent on the number of future college expenses. The more children you have, the larger your family is, and/or the younger your children are, the greater this factor in your premiums can be.
No one wants to think about their death or funeral costs. It’s not surprising that most people don’t even want to consider it and just try to forget about it together. After all, who wants to sit there and think about how much it will cost to bury them? The bottom line is that unfortunately death is inevitable, and on the off chance that you as the breadwinner of your family die without making provision for this expense, the costs associated with your funeral can be a strain for your family.
Health and Age
Your health is a factor that will affect how much life insurance you end up paying. Naturally, the healthier you’re considered for the respective policy you’re applying for, the cheaper your insurance is going to be. Obviously, health comes into play as it pertains to mortality, and in order to get a good rate on an on-going basis which may mean taking extra care to stay healthy.
Affordability is a critical factor when it comes to purchasing your life insurance. This means you should only choose the amount of coverage that you can comfortably afford. If you choose too much coverage, you might be struggling to pay your mortgage or care for your children. If you choose too little coverage, then your loved ones will really struggle to overcome the financial hurdles that will be left behind.
What Happens If You Don’t Get Enough Coverage?
Not getting a face sum or term length that coordinates your life insurance needs can put your family in monetary danger. Without the correct coverage add up to supplant your income, your family will be unable to sustain their lifestyle, plan for the future, or pay for your last expenses, and they may even lose their home or vehicle because of your unpaid debts.
If you require life insurance, it is vital that you know how much and what type you need. However, renewable term insurance is usually sufficient for most persons. You do have to access your own situation to determine. Just like with investing, acquainting yourself with the right amount of information is vital for you to make the right choice. Some do their due diligence in order to acquire the best life insurance you can.