How Much Life Insurance to Buy

How Much Life Insurance to Buy

Many factors can affect the cost of life insurance premiums. Certain things may be beyond your control, but other criteria can be managed to potentially bring down the cost before applying.

After being approved for an insurance policy, if your health has improved and you’ve made positive lifestyle changes, you can request to be considered for change in risk class. Even if it is found that you’re in poorer health than at the initial underwriting, your premiums will not go up. If you’re found to be in better health, then you can expect your premiums to decrease.

Step 1: Determine How Much You Need

Think about what expenses would need to be covered in the event of your death. Things like mortgage, college tuition, and other debts, not to mention funeral expenses. Plus, income replacement is a major factor if your spouse or loved ones need cash flow and are not able to provide it on their own.

There are helpful tools online to calculate the lump sum that can satisfy any potential expenses that would need to be covered.

What Affects Your Life Insurance Premiums and Costs?

Step 2: Prepare Your Application

• Age: This is the most important factor because life expectancy is the biggest determinant of risk for the insurance company.
• Gender: Because women statistically live longer, they generally pay lower rates than males of the same age.
• Smoking: A person who smokes is at risk for many health issues that could shorten life and increase risk-based premiums.
• Health: Medical exams for most policies include screening for health conditions like heart disease, diabetes, and cancer and related medical metrics that can indicate risk.
• Lifestyle: Dangerous lifestyles can make premiums much more expensive.
• Family medical history: If you have evidence of major disease in your immediate family, your risk of developing certain conditions is much higher.
• Driving record: A history of moving violations or drunk driving can dramatically increase the cost of insurance premiums.

Life Insurance Buying Guide

Life insurance applications generally require personal and family medical history and beneficiary information. You will also likely need to submit to a medical exam. You will need to disclose any preexisting medical conditions, history of moving violations, DUIs, and any dangerous hobbies such as auto racing or skydiving.

Standard forms of identification will also be needed before a policy can be written, such as your Social Security card, driver’s license, or U.S. passport.

Step 3: Compare Policy Quotes

When you’ve assembled all of your necessary information, you can gather multiple life insurance quotes from different providers based on your research. Prices can differ markedly from company to company, so it’s important to take the effort to find the best combination of policy, company rating, and premium cost. Because life insurance is something you will likely pay monthly for decades, it can save an enormous amount of money to find the best policy to fit your needs.

Benefits of Life Insurance

There are many benefits to having life insurance. Below are some of the most important features and protections offered by life insurance policies.

Most people use life insurance to provide money to beneficiaries who would suffer a financial hardship upon the insured’s death. However, for wealthy individuals, the tax advantages of life insurance, including the tax-deferred growth of cash value, tax-free dividends, and tax-free death benefits, can provide additional strategic opportunities.

Avoiding Taxes

The death benefit of a life insurance policy is usually tax-free.1 Wealthy individuals sometimes buy permanent life insurance within a trust to help pay the estate taxes that will be due upon their death. This strategy helps to preserve the value of the estate for their heirs.

Tax avoidance is a law-abiding strategy for minimizing one’s tax liability and should not be confused with tax evasion, which is illegal.