Life Insurance Estimation

Life Insurance Estimation

Death is something we don’t like to think about, let alone confront. But as the rising of the sun, it is an inevitable part of life. When it occurs, death can have a devastating impact on family members and dependents. Sometimes they may not be able to recover from the effect of losing a loved one. One of the ways to secure a comfortable lifestyle for our loved ones and dependants after we are dead and gone is by taking out a life insurance policy.

A life insurance policy transfers the financial risk of your death to a life insurance company. An insurance company, in return for your premiums, promises a make pay-out to your family upon your demise. It is essentially a guarantee that your family and dependents will be taken care of if you were to die.

It Is Not As Expensive As You Think

Though an average estimation can give you an idea of what you’ll be expected to pay, life insurance isn’t one-size-fits-all. There are many risk factors which are evaluated by insurance companies to determine your premium. No two situations are the same. This is why figuring how much life insurance you would need is not an easy question to answer. 

However, you’ll also be glad to hear that life insurance is not as expensive as you think. According to a recent study carried out by the Insurance Barometer, most people think life insurance costs three times more than it does. The average life insurance policy’s premium is $44 per month.  Most of the people interviewed were surprised to learn that a healthy 30-year-old can get a $250,000 20-year level term policy for just $13 a month. You can expect to pay $22 per month if you get a policy in your 40’s, and $48 if you are in your 50s. 

You can estimate how much life insurance you need by subtracting your assets from your long-term financial obligations. The difference is how much life insurance you will have to fill.

Before you Take Out A Life Insurance 

When taking out a life insurance policy, there are specific vital questions you need to consider:

1. Who Am I Protecting?

You need to state in clear terms who would be the beneficiaries of your life insurance. Who are you trying to cover at the event of your demise. Who would be the most affected by your death? The most common answers include a spouse or partner and children, but the list may also include siblings, ageing parents and extended family members.

2. For How Long?

It will help if you put into context how long your beneficiaries would need financial support. This depends on several factors such as age, if there are any special conditions, the type of coverage plan and amount on your life insurance. If someone is disabled or has other special needs, they may need lifelong support.

3. What Types Of Life Insurance Are There?

You should be knowledgeable about the two types of life insurance coverage: term and permanent. Term life insurance guarantees a certain level of premiums for a fixed period, usually 10, 20, or 30 years. On the other hand, permanent life insurance has no end date. On the other hand, permanent life insurance plans are designed to provide coverage for your entire life, as long as premiums are paid.

4. What Is My Budget?

You would also need to consider how much life insurance coverage you want. People want to make sure that their loved ones are adequately taken care of when they pass away. This depends on the size of their pay-outs. One way to estimate this is by subtracting your assets from your long-term financial obligations.

5. How Easy Is It For Beneficiaries To Be Paid?

This may be perhaps the most important question you would have to consider because this is the purpose of taking out a life insurance policy in the first place. You would want to know how easy it would be for beneficiaries to receive the money after you are gone. The way you structure your death benefit ultimately depends on your family and your goals. You can structure a lump-sum pay-out, or have it issued in monthly payments. Perhaps, you can instruct that the pay-out be made to an individual retirement account (IRA), to provide savings for your spouse’s retirement. It all depends on the individual’s situation and the goals you intend to achieve. 

6. Will My Premiums Change Or Increase Over Time?

You would want to know if your premiums would change or increase over time, or how easy it would be to do so. This typically on the type of life insurance coverage you have. If you have a term life coverage, your premiums stay fixed for the initial 10, 20 or 30 years, after which your premiums will likely go up. On the other hand, a whole life insurance coverage guarantees a fixed premium as long as you don’t let your policy lapse, your premium is guaranteed not to increase for the rest of the insured’s life.

Easy Ways to Estimate Your Need

Theirs is no clear-cut way to know the exact amount your beneficiaries would need if you die. However, there are various ways to estimate the figures. Do keep in mind that it is better to have an overestimate than to have a low estimation to ensure that the needs of your beneficiaries are adequately covered. 

Method 1:

  • One way to get a rough estimation of how much life insurance you would need to buy is by multiplying your gross income by 10 to 15. Some recommend adding $100,000 to that amount to cater for your child’s college education expenses.

Method 2:

  • You can get an estimate by envisaging the liabilities your beneficiaries would incur if you were to pass away such as immediate, ongoing and future expenses. Then you add up the financial resources available to your beneficiaries such as income, savings, investments and life insurance that’s already in place. Then you subtract the resources from expenses. The difference is the approximate amount of life insurance you should purchase. 

Method 3:

  • If you don’t want to go through that hassle, you can use a life insurance calculator. With just a few questions, you can get an idea of how much life insurance you would need to buy.

Factors That Determine Your Life Insurance Premium 

1. Age

Age is the most critical factor in determining the cost of your life insurance. This is because age is an indicator of the length of your life expectancy. The price of life insurance increases as you age. Older people have a lower life expectancy than younger people, and as such would pay more.

2. Health Status

People in good healthy condition pay less than those who have health complications such as diabetes or high blood pressure. Poor health raises your risk, which in turn affects how the insurance company prices your premium. Risk factors may include family history, medical history or bodyweight, history. 

3. Smoking Status

Smokers are considered high risk and usually pay more than non-smokers. smoking significantly increases your premiums, sometimes as much as 50%, though some state laws are against surcharging smokers

4. Occupation & Hobbies

Since we spend most of our life at work, it defines our lives and the types of risk we are exposed to, which directly impacts your life insurance premiums. People in dangerous occupations such as coal mining, manual labourers, security personnel or manual labourers are exposed to more risk than the average citizen with low-risk jobs such as teaching or working in an office. As such, they would more likely pay more for a life insurance policy. If you also engage in dangerous hobbies such as rope walking, mountain climbing, skydiving or extreme sports, expect to pay a higher life insurance premium. 

5. Your Sex

Women, on average, live longer than men by six to eight years. This is due to behavioural differences between both sexes. As a result, life insurance premiums for women are usually priced lower than those for men.

6. Your Coverage Level & Term

The more coverage and length you seek, the higher your life insurance premium. 

Take Action!

Everybody needs to take out a life insurance policy. This shows that you are mindful of the condition of your beneficiaries when you are no longer physically present with them. However, no two life insurance policies are the same. The type of life insurance policy that benefits you depends on your factors such as income, health condition and family goals. There are various ways to estimate the life insurance policy that befits you. No matter how young you are, you will be older tomorrow than you are today. Why not take action?