There are a number of life insurance products out in the market, and you may be overwhelmed with the options available to you. More importantly, there may be a number of them that seem foreign to you. Just remember, while the intricacies of each life insurance product or policy may be different, the basic purpose of life insurance is all the same. Life insurance was designed to leave a lump sum of money behind when you die.
Life insurance premiums are based on a number of factors and we'll clue you in on six of them:
One of the critical elements in determining what life insurance product you choose—and even what products are available to you—is your age. The younger you are, generally the more options you'll have to choose from. For some life insurance products like basic term life insurance, your eligibility to purchase ends at the age of 60.
Additionally, females tend to live approximately seven years longer than males, which translates to a less expensive policy for women. However, the gap on that life expectancy difference is starting to close. Age and gender will be the basic factors in the pricing of your life insurance premium.
3. State of Your Health
Most every life insurance policy will require either a physical exam or for you to answer some medical questions to determine your state of health. It probably goes without saying that the healthier of an individual you are, the less expensive your insurance policy will be.
Smoking is also a big, negative factor when pricing life insurance. If you list nicotine, you cost will be significantly higher.
Keep in mind that life insurance companies tend to correlate your age with your health. Therefore, the younger you are, the healthier you're expected to be, and vice versa.
Relatively speaking, term life insurance tends to be less expensive when compared to permanent life insurance; that can be attributed to the policy being in effect for only a specified period of time and the fact that no cash value is being built up inside the policy.
With a term insurance policy, you select a term—usually 10, 20, or 30 years—over when your life is protected. When that term evaporates, if you want to maintain that particular policy (which is usually due to the fact that your health has declined dramatically) a new rate is calculated, and it will increase significantly. A permanent insurance policy sets the policy in place for the duration of your life and will maintain the same fixed premium throughout the policy.
If you're really budget minded, you may consider Simplified-Issue Term Life Insurance, a self-serviced product that allows you to buy insurance online. Sometimes referred to as starter life insurance, MyTerm insurance allows you to buy a policy that is convenient and fits your budget. If you went through a needs analysis with a licensed agent, it may indicate that you should have more coverage, but MyTerm insurance is a good start!
5. Duration of Need
Are you interested in a policy that protects you for only a certain period of time? For example, you may have just purchased a home on a 30-year mortgage and are interested in securing life insurance. If one of your biggest considerations is ensuring that your mortgage balance will be resolved after your passing, then a 30-year term insurance policy might be best for you.
However, if your major concern is having protection in place even 45 years from now, a permanent life insurance policy is better suited for your needs.
6. Market Knowledge
Some insurance policies are strategically used to generate cash value to use for additional purposes. For example, some permanent life insurance options allow a policy to build up cash value like a savings account that can be borrowed against, if necessary.
If any or all of these considerations seem overwhelming, remember that a life insurance agent can help assess your situation and needs and recommend if term insurance, permanent insurance, or a combination of both is best for you. Any life insurance coverage is better than none!