Life Insurance Is Baffling, This Is Effortless

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Effortlessly Shop for Life Insurance

One might think choosing an insurance broker should be an effortless process. Select the one that offers you the lowest price, right? Well, that’s certainly not the case. Rather than submitting applications with eight different carriers, use a broker who has extensive knowledge in dealing with your distinct health condition to place you with the appropriate carrier with the highest chance for approval.

What is life insurance?

You have put great effort into making a living and taking care of your family. Life insurance is a way to secure that effort even beyond your death.

Life insurance will cover not only funeral and burial costs, but it will also settle your debts, may off your home, and provide financial stability to your loved ones left behind.

However, purchasing a life insurance plan does take some effort; you will need to research your options and choose a plan that best fits the needs of your family after your death.

Be sure to get several quotes and compare them so you can make the best decision of your life. 

How much does life insurance cost?

At time of purchase, life insurance monthly premiums will depend on your age, health, type of policy, and the amount of insurance desired. The most popular policy sold is a 20-year term policy worth $500,000, and it has an average monthly premium of $26. 

At a top level glance, we’ve provided some averages comparing the three types of policies. These average monthly premiums for a $100,000 policy are regardless of gender or smoking.

We will get into the differences between the three types of policies later in this article.

How are life insurance rates calculated?

Life insurance companies use an algorithm that takes into account several factors:

• Current US life expectancy
• Current mortality rates
• Your age
• Your health status
• Your driving history
• Any risky hobbies like scuba diving, skydiving, or base jumping
• Length of the policy
• Coverage amount

Basically, companies must predict how long you will live so that they can estimate how much of a risk it is to insure you.

Who needs life insurance?

Honestly, anyone with any kind of assets, debt, or family structure should have a life insurance policy. These types of responsibilities can include children, parents, businesses, and homes.

Just take a moment to think about the monthly bills you are financially obligated to pay. When your time comes, these debts will need to be paid, and no one wants any more bills than the ones they already have. If you fit into one of these categories, you should purchase a life insurance policy:

• Head of household — life insurance would replace your lost income
• Stay at home parent — life insurance would provide child care costs
• Single mother or father — life insurance would pay child support costs
• Homeowner — life insurance would pay off your mortgage so your family can stay
• Anyone with student debt — life insurance would pay them in full
• Business owner — life insurance would allow your business to be continued or sold
• Anyone who is a co-signer — life insurance would pay your end of the deal

When should you buy a life insurance policy? 

As soon as possible! Even if you don’t fit into one of the above categories, term life insurance policy premiums are very affordable, especially when you’re young. You can even list your best friend as the beneficiary so he or she can travel the world which you both have dreamed about since kindergarten.

Also, it’s good to purchase a policy when you are young and healthy. When it comes time to renew, some companies will consider your age, request updated family and personal health history, and may even require a medical exam and blood work.

How much life insurance do you need? 

Well, that all depends on your age at time of purchase, your debts, your financial obligations, and the type of policy you choose. A common estimate recommended by insurance experts is ten times your annual income, but this rule will not apply to everyone’s situation.

What types of life insurance policies are there?

Life insurance policies come with a variety of options, and this big decision all depends on when you decide to purchase it.

There are three types of life insurance policies: term, whole, and universal. The basic difference between the three is how long they last, flat-rate or variable rate, or if they hold a cash value.

If you’re a male, expect to pay more than a female, and If you smoke, expect to pay at least double the amount of a non-smoker, if not more.

Continue reading to learn more about the policy that is right for you at various stages of life.

What is term life insurance?

First of all, term life insurance is best for younger people in the case of a catastrophic event. The premiums are next to nothing, especially if you don’t smoke.

The premiums are also a flat-rate and do not fluctuate as you grow older. They are also guaranteed pay-out in full, regardless of how many payments you have made or the age of death.

Term life insurance policies are often sold in increments of years such as 10, 15, or 20 years. The downfall of term life policies, however, is that once they expire, it’s time to purchase a new one at a much older age and you will certainly have higher monthly premiums. 

But when it comes to comparing term life to whole life or universal life, term life is more like renting a home versus buying a home; term life is not an investment, there is no cash value, and you could be throwing away upwards of $3,600 over a 20 year period.

Below you can compare $100K term life insurance policies for smokers and non-smokers by age.

Term life insurance policy premiums are quite low even for larger amounts. You would be able to purchase a policy large enough to cover your salary for your family, pay off your mortgage and other debts, and provide college tuition for your children. 

For example, a 30-year-old male in good health can purchase a 20 year term life insurance policy worth $1M at a low monthly rate of around $40. 

However, when this glorious term life insurance policy comes to an end at age 50, it’s time to consider a type of life insurance policy that becomes more like an investment.

What is whole life insurance?

Whole life insurance is the exact opposite of term life insurance — it never expires as long as you continue to pay the flat-rate monthly premiums. Your payments will not increase as you get older, but will be generally higher than term life insurance monthly premiums.

Whole life insurance is more like an investment with several options. Part of your monthly premium will go towards a cash value and part of it will go towards the death benefit. 

As you make monthly payments, a cash value accumulates and will earn interest. You can even make an early withdrawal or take out a loan against the value of the policy as if it were collateral. An early withdrawal will come from the cash value that has accumulated, and the amount of the withdrawal will also be deducted from the benefit amount at time of death.

Upon your death, only the total cash value will go to your beneficiaries whether it is less than or more than the total benefit at time of purchase.

For example, a 35-year-old male smoker in otherwise good health can purchase a $250,000 whole life insurance policy for a flat-rate monthly premium of $279. At age 65, the cash-out amount would be around $122,000. 

Ten years later at age 75, the cash-out would obviously be higher, but if he were to pass before the policy is paid in full, the benefit amount would be the total cash value in addition to the part of the premium payments that went towards the benefit. 

If you wish to have more flexibility with your investment at any time, you may consider a universal life insurance policy.

What is universal life insurance?

A universal life insurance policy has the same terms as a whole life insurance policy but with more flexibility. WIth this type of policy, you can adjust your premium amounts and coverage amounts as often as you like as your needs change over time, but your age will still be taken into account when you make changes.

If you have limited or fluctuating income, a universal life policy is a sure bet towards retirement. In addition, as you make payments, your investment grows which you can then use to pay future premiums if times get tough such as a job loss, a recession, or a pandemic.

Basically, you pay what you can each month, it goes towards a cash value, and if you pass at any time, the benefit will be in full just like a term or whole life policy. Try your best to make higher payments early on so you can use the growing investment to pay future premiums.

To further illustrate the advantages of a universal life insurance policy, here is a hypothetical situation.

At the age of 20, a male non-smoker purchases a universal policy worth $100,000 with a monthly premium of $36 with the option to pay more per month if he is able.

Not bad!

But, at age 30, his minimum monthly premium jumps to $42 on a $100,000 policy. Living the American dream, he gets a well paying job, gets married, and buys a home. At this time, he can increase his benefit to $250,000 but his minimum monthly will certainly be higher, but he still has the option to pay more per month.

At age 50, his minimum monthly premium would increase to $90 on a $100,000 policy, but now he has three teenagers and a grandchild on the way. By this time, his student loans are paid off and he is only five payments away from fully owning his home. 

However, in case of his passing, in order to put the kids through college and leave some behind for his aging wife and likely future additional grandchildren, he will need to increase his benefit to $750,000 with a higher minimum monthly premium because of his age and the increased benefit amount.

The great thing is, though, he has been making minimum payments during the tough times and higher payments during the good times. Over time, he has accumulated nearly $90,000 — just enough to pay college tuition for his three kids with a cash withdrawal. He then decreases his benefit to $500,000 and has a lower minimum monthly payment.

If he dies at any point during his life, his family will receive the full benefit amount he had elected at time of death regardless of the amount he has paid into the policy.

On top of all that, he earns market-based variable rate interest along the way.

Are you ready to purchase the ideal life insurance policy for your needs? Enter your zip code into our quote tool to get started.

How do I choose a life insurance company?

Choosing a life insurance company not only involves comparing quotes. Consumers choose a particular company for a variety of reasons such as:

• Financial stability over time
• Market share over time
• Third party ratings (A.M. Best or Standard and Poor’s)
• Customer satisfaction (J.D. Power)
• Customer complaints (National Association of Insurance Commissioners)

Pay closer attention to companies that have a strong track record of paying out claims and those with an A.M. Best rating of B or higher.

To give you an idea of what companies are out there and what your payments and benefits may be, take a look at the table below showing monthly premiums by company for a 45-year-old male smoker in good health with a $250,000 whole life policy.

You can see that after 20 years of monthly payments — assuming there were no early withdrawals — both the cash value and benefit amount increase over time.

With so many options in policy types and companies, the best way to get started is to compare quotes. The most appropriate life insurance policy for you today is out there, you just need to put a little effort into finding it.