How to calculate Life Insurance? Life Insurance Comparator
- What is life insurance?
- Do you need life insurance?
- Comparison of basic types of life insurance
- How do I get and compare life insurance quotes from many companies?
- What is the average cost of life insurance? How do I calculate my life insurance cost?
- How can I lower my life insurance costs?
- What are the formulas to calculate my life insurance needs? How to calculate life insurance?
- How do I evaluate the available life insurance companies?
- Which are the top US life insurance companies for 2023?
What is Life Insurance?
Life insurance is a tool that helps to protect your family members after your death. During the life of a person, he struggles to move forward in his life and takes care of his dependents. After his death, many financial issues are left unresolved.
Life insurance is a formal contract between you and your life insurance company. It specifies the period, coverage, and premiums that the two parties decide together. The person who buys life insurance becomes the policyholder.
Also Read: How Much Income Do I Need For Life Insurance?
Back in the day, due to a lack of awareness, people thought of life insurance as a luxury. But with the rising awareness and exposure, it has become a basic necessity. Some states of the US have made buying necessary life insurance for yourself, mandatory by state law.
Whether you need it or not depends on your case. If you’re single and plan to stay so forever, you do not need life insurance. Except maybe burial insurance to cover your funeral costs after your death.
However, if you have a spouse, kids, parents, or grandparents who are financially dependent on you. It is a must-have for you! After your sudden or natural death; you need to make sure that your basic expenses are covered. These include income replacement, college expenses, burial costs, credit card or mortgage debts, etc. Burial Insurance covers the immediate costs after-death like a funeral ceremony.
Comparison of basic types of Life Insurance
There are 2 main types of life insurance policies:
Term life
Term Life Insurance Policy is temporary but most popular amongst the US people due to its affordability and small-time coverage. It has a term ranging from 10-30 years. It has fixed monthly premiums till your term expires. The death benefit payout is enough to cover your burial expenses and other major life expenses for some time.
Permanent Life
It has a whole life type and universal life policy. Both offer lifetime coverage and are the most reliable forms of coverage. Both offer a cash value account with interest applicable. Both offer a huge death benefit payout lump sum cash for dependents after they expire. Both have very expensive monthly premiums. Both are worth choosing for people with a lavish budget.
Whole life has fixed premiums while universal life has flexible premiums. Universal life accommodates the policyholder to pay lower premiums during job shifts, new baby arrival, new business start-up, or medical emergencies. Similarly, it offers the option to pay higher premiums by your own will during pay increments, promotions, or profits on any other business.
How do I get and compare Life Insurance quotes from many companies?
Reach out to an independent broker who is a good financial advisor. Consult him and he will do the research and bring you many types of life insurance policy and their quotes. Compare the options and features, compare the costs, and calculate your life insurance needs with your independent broker. When you guys calculate your need and match a company and its quotes to cover it with the least cost and most features, you’re successful. To get a quote from Insure Guardian click here!
What is the average cost of Life Insurance? How do I calculate my Life Insurance cost?
Life insurance cost is affected by the following factors:
- Age: The younger you are, the less the premium costs.
- Weight: The fatter you are, the higher the costs of premiums. A BMI of 30-31 is good!
- Lifestyle: If you smoke and drink a lot, premiums would be higher.
- Family medical history: If you have inherited diseases, the costs would be higher.
- Type of policy: If you buy a permanent policy, premiums would be costlier.
- The coverage amount: For higher coverage policies like $2,000,000, premiums would be higher.
How can I lower my life insurance costs?
By using these steps, you can try to lower the costs:
Choose the right type of life insurance:
Firstly, use the Insure Guardian Insurance Calculator to get an accurate estimate of your life insurance needs. Then, choose the most reputed companies of 2023. With the help of an independent broker, go for the best-suited policy for your needs.
Consider the joint Life Insurance:
This is usually for partners or a couple, but any two people can opt for this together. And save some bucks on it. If you can find more life insurance back-ups like group life insurance by your employer, go for those options. Similarly, you can buy a decreasing term life policy, which allows you to pay off small debts, as its premiums and death benefits decrease with time.
Get in Shape:
The best way of lowering the costs of the monthly premiums is to stay fit. If your BMI is more than 39, you will probably have to pay way more than a healthy person. Similarly choose a simple and healthy lifestyle, if you indulge in regular drinking and smoking, you will pay expensive premiums, no matter which type of policy you have bought.
What are the formulas to calculate my Life Insurance needs? How to calculate Life Insurance?
Generally, there are 3 formulae:
Human Life Value
Calculate your annual income and multiply it by 10 years, and there you have the life insurance coverage you need for 10 years. However, it can be split up and specified for all age brackets till 65 years.
- When you’re 20-30 years old; multiply the annual income by 30-40 (for this many years’ coverage)
- When you’re 40-50 years old; multiply your annual income by 20-30 (for this many years’ coverage)
- When you’re 50-65 years old; multiply your annual income by 10-15 (again for estimated years)
Note: After 65, the life insurance companies rate your application based on your physical assets and net worth, instead of your income.
Annual income multiplied by 10 with child college expense
- Second universal formula popular in the US is to multiply your annual income by 10.
- Add $100,000 to every child’s college expenses for a lifetime.
For example, if your annual income is $3,60,000 and you have 3 kids, for all three you add up and have $300,000. You will need a total life insurance coverage of around $660,000 according to this formula.
Dime Formula
This is also widely used by the US people and insurance firms to get an estimate on your likely life insurance needs.
- Debts: Calculate all your debts and loans from the property, car payments, credit card loans, and student loans, etc.
- Income: Calculate your annual income and multiply it by the number of years you want to get covered.
- Mortgage: Calculate your major mortgage loans that are pending.
- Education: For each child allocate $100,000 for his education expense.
Sum up the DIME, and now evaluate the assets you have like real estate, savings account, other life insurances, retirement funds, pension, etc. Now you subtract your asset’s total liquid worth from the summed-up DIME and go look for a life insurance policy that can give you that much coverage amount.
How do I evaluate the available Life Insurance Companies?
There are universally accepted benchmarks such as:
- FSR Financial Strength Ratings: A.M. Best Ratings.
- Customer Satisfaction: J.D. Powers 2022 latest survey ratings.
- Least Client Complaints: NAIC National Association of Insurance Commissioners.
Go for any of the best companies who top on all 3 benchmarks!
Which are the top US life insurance companies for 2023?
Based on the data analysis from the following four sources,
- Forbes top rated for July 2023
- A.M. Best Ratings and 2022 market share for FSR
- Customer Satisfaction based on J.D, Powers survey 2022
- NAIC’s latest complaints records
Insure Guardian has chosen the following 5 as the best life insurance firms to go for:
- Mutual of Omaha
- Protective
- Pacific Life
- Foresters Financial
- Northwestern Mutual