1. Coverage Amount: The more you get, the higher your rates. but…
Term life insurance tends to be affordable, in the sense that you can get a certain amount of coverage typically for much less than it would cost with a permanent whole life policy. still, more coverage will cost more. But if you’re trying to decide between a higher or lower benefit amount, it may help to know that a higher death benefit may be more profitable than a lower one. as the rate chart shows, the cost per $1,000 decreases as coverage levels go down. Put another way, for any given applicant, $1,000,000 of coverage is generally less than twice the cost of $500,000 of coverage.
How much do you really need? That’s entirely a personal decision, based on where you are in life and how many people depend on your income. however, there are several ways to get a quote. Our life insurance calculator uses the “value of human life” method, which looks at what you’re earning now plus what you expect to earn in the future. (That’s why it asks about your income). between the ages of 18 and 40, multiply current income by about 30; as you get older and have fewer years of work left, that multiple decreases.2 There are other methods to estimate your needs:
Consider multiplying your income by 10
Take your annual salary, add a “0” to the end and there’s your amount. a salary of $50,000 equals coverage of $500,000, $75,000 equals $750,000, and so on. While this estimation method is very simple, it doesn’t really take into account your true expenses and needs. That brings us to the next formula, which is a bit more complex.
Consider multiplying your income by 10 and adding college for each child
This approach gives you the added peace of mind that your children may have more opportunities. how much should you add? they represent between $100,000 and $150,000 per child. if you split the difference and have two kids, that’s an extra $250,000.
Consider using the dime formula.
tell me means debt, income, mortgage, and education—four of the most important things to consider when making a detailed estimate of your life insurance needs:
- Debt: Add up all your debts other than your mortgage and add about $7,000 for funeral expenses.
- Income: Take your salary and multiply it by the number of years you think your family needs protection, or at least as long as you have children at home.
- mortgage: look at your latest statement and get the payoff amount. if you have a second mortgage or heloc (home equity line of credit), add that too.
- education: the anticipated cost of sending each of your children to college: between $100,000 and $150,000 per child.
Add them all up, then subtract any existing savings or life insurance, and that’s your estimated need. If you do the estimating exercise according to each method, you will find that each gives you a different amount. how do you choose one more rule of thumb: choose the number that makes you feel best about protecting your loved ones.
2. length of term: a longer period of coverage costs less, in the long run
You can get term life policies that last 1, 5, 10, 15, 20, and even 30 years, but let’s say you need 20-year coverage. If you compare two equivalent $1,000,000 policies, one for 10 years and the other for 20, you’ll see that the 20-year policy has higher monthly premiums. Unfortunately, that leads some people to think they can save money with a 10-year policy. however, over two decades, a single 20-year policy will almost always cost less than two consecutive 10-year policies. why? Because even though your rates will be lower for the first 10 years, the policy you get a decade later will cost much more. One of the most basic rules of life insurance is that it generally costs more as you get older. besides, a lot can happen in a decade. for example, your doctor might find that you have high blood pressure. even if well controlled, that kind of diagnosis can cause rates to go up.
3. life expectancy: assessing your risk to the insurance company
Why does life insurance become more expensive with age? because life expectancy is reduced, a key factor in determining rates. There is generally less risk in insuring a younger, fitter person because they are less likely to die in a given period of time, be it months, years, or decades, compared to an older, less healthy person. That’s more than common sense: It’s a proven fact of actuarial science, the discipline that applies mathematical and statistical methods to assess risk in insurance and other industries. When you apply for a policy with a substantial death benefit, there is an application and underwriting process: Insurers collect your information, consider your age, and assess your health with questions and, typically, a medical exam that includes blood tests to check your health. cholesterol levels and soon. Other elements, including lifestyle and gender, are also considered: risky habits and dangerous hobbies (eg, tobacco use, scuba diving) can make life insurance more expensive. on the contrary, women tend to live longer, so they generally enjoy lower rates.
What about “no health exam” policies? Sometimes you’ll hear about life insurance that doesn’t require a medical exam or even health questions. these “guaranteed acceptance” policies tend to offer limited face amounts and can cost much more per $1,000 of coverage than a medically underwritten policy. after all, the insurance company has to assume that the applicants have problems with their health condition. So, while a guaranteed acceptance policy may be an option for seniors who want to cover their final expenses, it may not be a good solution for younger, healthier earners who want enough life insurance coverage to keep up. to a family.
