Protecting your beloved family is everyone’s utmost priority and needless to say, life insurance is the perfect solution to finally be stress-free and relaxed regarding financial security.
Focusing on the primary outlook, life insurance promises to protect and safeguard the future of your family, and in particular, it ensures peace of mind. Essentially, life insurance is a contract between an individual and the insurance company.
If you are new to the concept of life insurance, you must have various questions about how life insurance works, what is the need for this insurance, or how life insurance works as an investment.
To answer all your queries and concerns, the following article will cover all the aspects of life insurance and its working. Further, there will be a plethora of legal and financial terms whose familiarity will prove advantageous to you. So, follow this detailed guide on how much is life insurance per month.
What Is life insurance?
The first and foremost point is defining the definition of life insurance in layman’s terms. What is life insurance? It is a way to protect your family or business by signing a contract between you (the policyholder) and an insurance company.
Life insurance can serve a diverse range of benefits and purposes. Ranging from replacing homes to paying outstanding debt, life insurance can be utilized for a vast number of things including covering college tuition or funeral expenses. The real question is how much is life insurance per month.
Owning a life insurance policy is a must for every person who desires to guarantee the financial security of family members and surviving loved ones, after his/her death. Basically, the insurance company will pay a handsome amount known as a death benefit to your beneficiaries after your death in exchange for your premium payments.
How does life insurance work when you die?
Many citizens want to get familiarized with the working of life insurance and what happens after the insured person dies. Well, the explanation lies in the concept of death benefit which is discussed below.
What Is a Death Benefit and why is it paid? The money paid by the insurance company after your death is known as a death benefit. It is essentially a payout to the beneficiary of a life insurance policy, annuity, or pension when the insured passes away. For life insurance policies, death benefits are not subject to income tax and beneficiaries receive the death benefit as a lump-sum payment.
The beneficiaries named by the insured can use the money for whatever purpose they desire. In the majority of occurrences, the money is utilized to pay everyday bills or a mortgage, put a child through college, etc.
How does life insurance work when you live?
In other case scenarios, you outlive the life insurance policy’s tenure. What’s next? You are faced with two other options. Namely, the policy will simply end and you’ll no longer be covered. Or your insurer may allow you to convert all or a portion of the policy into permanent life insurance.
Types of life insurance
While there are different types of life insurance policies, all of them have similar attributes and core functionality. They are designed to provide money in the form of a lump sum, to your “named beneficiaries” after one’s death.
With a life Insurance policy, you can take care of your family the right way but the question arises what kind or type of life insurance suits you the best? To match people with different criteria and requirements, the system has introduced types of life insurance for the ease of citizens.
Primary, there are two types of life insurance: term and permanent life. The two types of life insurance are discussed in detail below.
Term life insurance
The first type of life insurance we will be discussing is Term Life Insurance which is unarguably the most affordable and most popular type of life insurance. Term Life Insurance rose to unprecedented fame among its admirers and acquired the majority of the market with 71% of purchasers preferring it according to the Insurance Barometer Report.
The principal reason behind its acclaim is that it provides coverage for a certain amount of time and the premium payments stay the same amount for the duration of the policy. The policy lengths can vary from 10, 15, 20, 25, or 30 years. In case of the policy holder’s demise within the term of the policy, his/her named beneficiaries can easily claim and receive the death benefit money without tax.
Furthermore, once the term policy reaches its expiration date the policyholder has the facility to renew the coverage by the increment of year. The increases in time are termed as guaranteed renewable. However, each year of renewal is more expensive than the previous year and has higher rates.
The term life insurances are the most favorable policy because they last a specific number of years and in case of expiration, there are no payouts. While it’s the cheapest life insurance it has a fair share of a disadvantage since in case an individual outlives his/her policy, their named beneficiaries won’t receive a payout.
Permanent life insurance
Next up, we discuss Permanent life insurance that can be whole or universal. How does payment life insurance work? They provide lifelong coverage and are more expensive than term life.
The permanent life insurance policies are bound to be permanent if the policyholder meets the monthly premium payments and can offer a cash value component. The duration of these policies is not fixed and they can last for the duration of the insured one’s life.
Such life insurance slowly yet surely builds valuable cash value whose component accumulates on a tax-deferred basis over the life of the policy. In simpler words, it performs the role of the saving portion of the policies.
Since there is a possibility that the policyholder can borrow against the policy’s cash value or make a withdrawal, then one can decide to end the policy and get the cash value. This way the surrender charge will be discarded.
The following policy is a gradual phenomenon and the cash value may build slowly over many years. Hence, an individual/policyholder cannot assume that he will have access to a lot of cash value right away. To view your projected cash value, you need to check your policy illustration.
Ultimately, these policies can easily last one’s entire life and include a cash value component that can be withdrawn or borrowed against while the person is still alive. Next up, we describe the several varieties of permanent life insurance
Whole life insurance
Whole life insurance is a permanent life insurance policy that ensures a fixed death benefit for the named beneficiaries alongside a hefty amount of cash value savings component for the policyholder.
Like everything in the world has its benefits and potential downsides, the same norm goes with whole life insurance that can easily last until the policyholder’s death. The precondition of smooth working is the payment of premiums.
Working on the dazzling mechanism of “set it and forget it”, the following life insurance states that the premiums stay the same and the insured person can get a guaranteed rate of return on the policy’s cash value. The fulfillment results in the death benefit amount not changing. Typically, whole life insurance is far more expensive than term life so citizens who desire to tone down their financial expenses have to explore other options in the insurance niche.
Universal life insurance
The second type of permanent life insurance is universal life insurance which offers far more flexibility than a whole life insurance policy. Facilitating the user with many conveniences, the policyholder can easily alter his/her premium payments and death benefit within a certain amount of limits. By opting for a universal life insurance policy, the cash value will build depending on the policy type.
Let’s take help from this example where we suppose that an indexed universal life insurance policy will have cash value tied to an index. The variable policy will have ranging investment subaccounts.
Dubbed as the most flexible permanent life insurance option, it provides policyholders with the ease to pay premiums at any time and reduce or increase their death benefits. However, they are subjected to market fluctuations because the cash value component is invested in stocks.
Universal life insurance
Due to the minimal cash value, a universal life policy is cheaper than whole life. However, a missing payment could forfeit the policy leaving the insured person empty-handed.
Burial insurance
Further, we have burial insurance which is a small whole life policy with a small death benefit. The value of the death benefit is somewhat between $5,000 and $25,000. Majorly, this kind of insurance is designed to cover only funeral costs and final expenses.
Survivorship life insurance
According to the statistics, more than 40 million people wish to have life insurance but have not availed of the insurance plan. The reason is quite simple: people tend to overestimate the cost of life insurance.
The Survivorship life insurance confirms two people under one policy, usually a married couple. The policy pays out the death benefit to the beneficiaries only when both the spouses have passed away. Commonly known as “second to die life insurance”, the survivorship life insurance is part of a larger financial plan to fund a trust or pay federal estate taxes.
Average life insurance rates
The average life insurance rate cost is about $27 a month As per the statistics, the data provided by Quotacy revealed the most common term length and amount sold for a 40-year-old buying a twenty-year-old $500,000 term life policy.
Average cost of term life insurance by age
These annual life insurance rates are based on a $500,000, 20-year term life insurance policy for super preferred applicants. Here we discuss how much is life insurance per month and annually.
- Aged 30, Average rate for men – $227, Average annual rate for women – $192
- Aged 40, Average rate for men – $340, Average rate for women – $287
- Aged 50, Average rate for men – $3835, Average rate for women – $652
- Aged 40, Average rate for men – $340, Average rate for women – $287
- Aged 60, Average rate for men – $2,362, Average rate for women – $1,673
- Aged 70, Average rate for men – $9,298, Average rate for women – $8,205
Average cost of whole life insurance by age
These annual life insurance rates are based on a $500,000 policy for super preferred applicants.
- Age 30, Average annual rate for men – $4,985, Average annual rate for women – $4,372
- Age 40, Average annual rate for men – $7,372, Average annual rate for women – $6,428
- Age 50, Average annual rate for men – $11,250, Average annual rate for women – $9,877
- Age 60, Average annual rate for men – $18,130, Average annual rate for women – $15.753
- Age 70, Average annual rate for men – $30,325, Average annual rate for women – $26,815
Factors that don’t impact life insurance premium price
Earlier, we determined the factors that will have an effect on the price of life insurance premiums. Those factors include the rate offered, type of insurance policy, age, and medical condition of the potential policyholder.
Now, we will list down the factors that will not affect the life insurance rate that is being offered. These factors have no effect and are not considered whilst issuing a life insurance policy.
Ethnicity, race, and sexual orientation – Insurance policy and prices do not depend on insurers. While age and gender are thoroughly assessed, insurance companies can’t discriminate against elements of diversity.
Credit score – The credit scores are checked-in detail, one can surely expect the insurer to look at the credit history going back seven years. In case you have a bankruptcy on your record, you might be deemed to have a higher risk of mortality.
Marital status – The life insurers don’t have different rates for married applicants. However, some insurances like many auto insurance companies do impose additional costs on marital status.
Number of life insurance policies – While a larger number of insurance policies does not affect the price of premiums, the policyholder has to justify purchasing increased coverage across multiple policies.
Number of beneficiaries named – Whether you have one life insurance beneficiary or five, this won’t impact your rate.
How much is life insurance for a 55-year-old?
The increase in monthly premiums as you age is much smaller if you are young, compared to when you are older. The average life insurance quote only increases by 6% between ages 25 and 30, but it jumps much higher between ages 60 and 65. There could be an average increase of 86% or $275 per month.
How much is life insurance for a 55-year-old? For the people who are aged 50, the rate for men is $190 while the life insurance rate for a 55-year-old woman is $663.
How much does life insurance cost?
Once you have decided and you are certain regarding the kind and type of insurance you wish, the next question that arises in your mind is how much is life insurance per month.
Despite the policies of life insurance floating for quite some time, the majority of citizens still often fail to utilize these policies. The grounds of being unaware of plans and pricing is the pre-gained perceptions about affordability.
Hence, the citizens have made earlier assumptions about the value resulting in discouraging people from buying the life insurance they need. Here’s a breakdown of what you need to know about how much life insurance costs so you benefit from the best offers.
The cost of life insurance can get influenced by several factors where the type of insurance you choose to opt for plays the most crucial role. For example, a term life insurance policy is less expensive than a whole life insurance policy.
Below, we discuss the factors that lead to fluctuation in cost and diversify the insurance plans:
Age – If you buy the policy when you are young, that will automatically mean that you will be paying less because the chances of your death are lesser.
Gender – Gender also determines how much life insurance will cost. Women tend to live longer than men. This means that males generally pay more for life insurance than females.
Health – Your health plays a major impact on your life insurance rates. During the medical exam, the insurer examines your medical conditions to calculate your life expectancy.
Lifestyle – LIfestyle also hugely impacts the cost of life insurance. For example, your driving history, criminal record, and occupations can result in higher rates.
How to choose a beneficiary?
Subsequent to finalizing the process of life insurance and finalizing how much is life insurance per month, the last step is choosing the beneficiary who will claim the death benefit after one passes away. The policyholder has the authority to name multiple beneficiaries.
Further, he/she can also decide what percentage they each will receive when they die. Additionally, there is a possibility that you name contingent beneficiaries in case the primary beneficiaries have died. There is a possibility that you opt for naming trust by creating a revocable living trust and naming it as the life insurance beneficiary. For example, the trust money could be used to take care of children.
In the occurrences where someone decides to name a trust the beneficiary of your policy, an attorney is hired to structure the trust correctly. Moreover, it is advised to work with a financial planner so a larger and better financial plan can be designed. It is important to update your beneficiary selections regularly because events such as marriage or divorce can be impactful.
How does a beneficiary make a claim?
Named beneficiaries who are selected by the policyholder to claim the death benefit after their demise can easily claim the hefty amount after following a standard protocol.
The claims are paid at the earliest opportunity given that all conditions have been satisfied and the said beneficiary has all the documents required for clearance. Typically, the insurance company doesn’t contact themselves rather the beneficiary has to initiate the claiming process. Below is the list of the documents that are necessary for the claim:
A copy of the death certificate is needed to be submitted. Claims are typically paid within 30 days after the insurer receives the necessary documents
Benefits of life insurance
At last, life insurance provides a number of useful benefits including
- Life Insurance payouts are tax-free – Life insurance payouts are not considered income for tax purposes and hence the beneficiaries do not have to report the money when they file their tax returns.
- Dependents won’t have to worry about living expenses – Life insurance policies help people avail themselves of certain benefits like they do not have to worry about their living expenses or other major costs.
- Life Insurance can cover final expenses – When someone has a life insurance policy, their beneficiaries can use the money to pay for their burial expenses easily. Some insurers offer final expense policies.
- Coverage for chronic and terminal illnesses – Various life insurance companies offer endorsements that allow you to access your death benefit if you are diagnosed with a terminal illness and are expected to live less than 12 months.
- Policies for retirement savings – If you purchase a whole, universal, or variable life insurance policy, it can accumulate cash value in addition to providing death benefits. As the cash value builds up over time, you can use it to cover many expenses.
Life insurance calculation methods
Here is how you determine your life insurance with a basic equation to a general outlook regarding how much is your need.
[Financial obligations you want to cover] – [existing assets that can be used toward bills] = Your life insurance need
By the terminology Financial obligations, you can possibly cover income replacement, mortgage, large debts, and your children’s college tuition. “Existing assets that can be used toward bills” will include elements like existing life insurance, savings, college 529 savings, and funeral expenses.
Other methods which are popularly run for calculating how much life insurance you need are listed below.
Multiply income by 10 – Even though it is the quickest and the simplest approach, this rule of thumb will likely not help in pinning down an appropriate amount of life insurance. Hence, it is advised to observe total needs and subtract the assets your family will use if you pass away.
The DIME method – DIME stands for debt, income, mortgage, and education. In this method, you add up debt, income, and mortgage, alongside education. The DIME method is a good start for calculating a life insurance need.
Choosing the right life insurance policy type
After carefully analyzing diverse life insurance policies, one might want to determine a final verdict over which is the best life insurance policy after all?
Well, the answer varies from person to person considering one has to keep in regard his/her financial condition, priorities, and age. The availability of all of the life insurance options available is bound to be a complicated choosing process because let’s be honest, decisions are hard.
Hence, avoid having second thoughts and go for the option which suits you the best. Start with preliminary options and carefully weigh the pros and cons of term life and permanent life insurance.
Opt for a term life insurance policy if you require life insurance for a specific amount of time. It’s also a good choice if your budget is limited. If that’s not the case, a permanent life insurance policy will last for the duration of your life. Also bear in mind that the cash value isn’t typically intended for beneficiaries. They will get the policy’s death benefit, not the death benefit and the cash value.
What does life insurance cover?
As the intricate working of life insurance continues to get explored, one might feel compelled to ask the question about what does life insurance cover? Various life insurance products are designed to protect the policyholders from unexpected events. Some examples are listed below:
