Life insurance is not fun to talk about and it’s definitely not a process anyone enjoys. However, buying life insurance is an essential part of life and a crucial element of sound financial planning.
While most people are aware that they need life insurance, many will wait until there’s an important life event that pushes them to buy it. Ensure your future is financially protected, not only for yourself but for your loved ones. Find a life insurance policy that best suits your needs and budget today.
How Does Life insurance Work?
Life insurance provides a specified sum of money to your beneficiary after you die. Life insurance can either be temporary (also known as term life insurance) or permanent. Temporary insurance and policies are issued for a specified number of years — typically 5-30. Permanent insurance covers you for your entire life or up to a certain age, usually 100.
| Temporary (Term) Insurance | Permanent Insurance |
|---|---|
| Pays a death benefit to your beneficiary only if you die during the term of an active policy until age 95. | Pays a death benefit to your beneficiary regardless of when you die as long as the policy is in force. |
| In most cases, death benefit and the right to convert to a permanent policy without proof of insurability are the primary features. | Includes both a death benefit and a savings feature. |
| Policy has no value at the end of the term. | Policy builds cash or loan value you can borrow against, withdraw, or invest. |
Why Do You Need Life Insurance?
When considering whether or not you need life insurance, it’s important to ask yourself a few questions. For example:
- “If I die tomorrow, will someone in my life be financially affected?”
- “If I die tomorrow, who would assume my debt such as my home payment, car payment, loans, etc.?”
- “If I die tomorrow, how will my children financially be affected?”
- “If I die tomorrow, how will my business be affected?”
Bottom line, if you own a home, have any debts or liabilities, have children, own your own business, or more, these are things you’ll want to consider when selecting a life insurance policy.
How Much Insurance Do You Need?
This is often a difficult question to answer since it varies person to person. We recommend starting with the questions above and determining who will be financially affected. Then determine what that financial burden might look like. The general formula many insurance agents will use to calculate how much insurance you need is between 7-10x your annual salary.
For example, if you earn $100,000/year, you should consider purchasing an insurance policy between $700,000 – $1,000,000.
How Is The Premium Rate Calculated?
Typically, age is the most important factor when determining your premium rate. Often, the younger and healthier you are, the less expensive the premium rate will be. A few other factors that are considered include:
- Gender: Females usually get lower rates because they have a longer life expectancy
- Health Questions from Policy Application: Your answers to these questions can affect your rates
- Medical Exam & Lab Work Results: This is used to determine your health status
- Family Medical History: This is used to assess whether your family has a history of certain illnesses that could later affect you
- Marital & Family Status: Do you have a spouse or children that would be affected?
- Location: Some locations are more expensive to insure than others
- Lifestyle: Do you smoke or drink? Do you partake in any risky hobbies such as skydiving?
Which Insurance Policy Is Right For Me?
If you need help determining which life insurance policy will work best for you, here’s a helpful guide on which policy will likely work best in each situation from Nerdwallet.
If you need assistance with this process, please feel free to contact our office.