Overview
Four-in-10 Americans said they need life insurance or need to increase their coverage, according to a recent study from LIMRA and Life Happens. Roughly half the US population (46% for women and 57% for men) said they have some life insurance coverage.
What’s holding you back from buying life insurance? If you’re like many people, it could be that you feel it’s too expensive. But, as you begin shopping for a policy, you might be surprised to find that’s not true. Nearly three-quarters of the people polled overestimated the cost of a term life policy, while 54% admitted they based that cost on a “wild guess” or “gut instinct.”
So, how much life insurance do you really need? And how much will it cost? What’s the difference between term life and whole life? Stay with us as we dive in.
What Is Life Insurance?
You probably already know that life insurance is an insurance policy that pays money to your beneficiaries – your children, a spouse, other loved ones, or even a cause you care about – after you die. Life insurance varies in its premium costs, payouts, and the types of policies you can choose, each with different benefits and drawbacks.
Types of Life Insurance Coverage
There are multiple kinds of life insurance to meet various needs and budgets. Understanding your options can help you choose the policy (or policies) that’s best for you.
Estate planning isn’t just for the wealthy. Virtually everyone can benefit from having the right life insurance policy to help your loved ones meet everyday costs after you’re gone, to preserve your legacy, or – in the case of whole life – to add to your retirement savings.
In fact, according to the LIMRA study, 56% of households earning less than $50,000 per year could benefit the most from life insurance. And policies might be more affordable than you would imagine.
Term Life Insurance
Term life insurance has many advantages for those looking for a low-cost policy. Term life has fixed monthly payments and a fixed term of 10 to 30 years. Many companies offer an option to convert your term life into a permanent policy with no medical exam, which is why it’s a good idea to lock in your policy while you’re young.
Permanent Life Insurance
Unlike term life insurance, permanent life insurance doesn’t expire. As long as you keep paying into the plan, it’s available for you and your loved ones.
Permanent life insurance offers more options than term life and comes in many forms. Two of the most common are whole life and universal life insurance. With a whole life policy, your premium payment and benefit both remain fixed – costs won’t rise, but the death benefit also doesn’t change.
A universal policy guarantees a minimum payout when you die, but that benefit may also increase if market conditions change. If your policy has built up enough cash value, you might be able to skip payments, reducing premium costs.
Whole life policies may also pay dividends, which you can use to offset your premium costs, add to the policy’s cash value, or withdraw to help fund retirement or other expenses.
You may also be able to borrow money from your permanent life insurance policy once the policy has accumulated enough cash value. But it’s important to understand that borrowing against the policy reduces the death benefit until you pay off the loan.
Who Needs Life Insurance?
Most people can benefit from having life insurance, even if it’s just enough to cover your funeral expenses and alleviate that financial burden from your family members after you die. You might consider a larger life insurance policy if you:
Will have a surviving spouse who relies on your income
Have a mortgage
Have children entering college
Want to leave a legacy to a favorite charity or cause
How Much Does Life Insurance Cost?
Life insurance rates vary widely based on the type of policy, coverage levels, age, gender, and your general health. For instance, average rates for a 10-year term life insurance policy with a $1 million benefit can range from $29 for a 35-year-old female up to $176 per month for a 55-year-old male, according to online life insurance company Ethos.com.
The average cost for a term life insurance policy is just $26, according to BusinessInsider.com.
You may be able to lower your premium costs by eliminating risk factors. Before you apply for a life insurance policy, consider:
Quitting smoking
Taking steps to reduce blood pressure and cholesterol
Losing weight to reduce body fat percentage
Shopping for life insurance when you are in your 20s or 30s
How to Buy Life Insurance
When you’ve decided to take that step and purchase life insurance or increase your coverage levels, determine whether a term life or whole life policy is best for you right now. If you have the money available and prefer to turn your life insurance into a money-making investment, consider universal life.
Shop around online for quotes or speak to a life insurance broker. It’s best to find a broker who works with multiple top-rated carriers to ensure they are offering the best premium rates and coverage levels.
The Point
Virtually everyone can benefit from a life insurance policy. Choosing the right type of policy for your financial circumstances can keep your premiums low while maximizing your investment.
by your friends at The Daily Navigator
