Life Insurance: Can You Still Get Covered?

Life insurance is a contract between an insurance company and a policyholder, where the insurer agrees to pay a sum of money to the policyholder's beneficiaries upon their death. The policyholder pays premiums to the insurer during their lifetime, and the beneficiaries receive a death benefit when the insured person dies. There are two main types of life insurance: term life insurance and permanent life insurance. Term life insurance covers the insured for a specific period, such as 10 or 20 years, while permanent life insurance covers the insured for their entire life as long as premiums are paid. Life insurance is particularly important for those with financial dependents, such as parents with minor children, breadwinners, and those with co-signed debts. It can also be useful for stay-at-home spouses, as their contributions to the household through childcare and household duties have significant economic value. When deciding on life insurance, it is essential to consider factors such as age, health, lifestyle, and financial goals to determine the appropriate coverage amount and type of policy.

How much life insurance do I need?

The amount of life insurance you need depends on your financial and family situation. If you have loved ones who depend on your income, life insurance can help cover funeral and burial expenses, pay off remaining debts, and manage day-to-day living expenses for those you leave behind.

• Income replacement: If you are the sole provider for your dependents, you will need a policy payout large enough to replace your annual income, plus a little extra to hedge against inflation. It is recommended to have enough coverage to replace at least 10 years of your salary.
• Debts: Your policy should include enough coverage to pay off any outstanding debts, including student loans, car loans, mortgages, credit cards, and personal loans.
• Future needs: Consider any future needs such as college fees for your children and funeral costs.
• Stay-at-home parents or spouses: Even if you don't earn a traditional salary, you may still need coverage. Stay-at-home parents and spouses provide services that can be costly to replace, such as cleaning, cooking, and childcare.
• Age: The younger and healthier you are, the less you will pay for premiums. However, older people can still get life insurance, although the premiums will be higher.
• Financial obligations and assets: Calculate your financial obligations, such as mortgage payments, and then subtract your assets, such as savings and investments. The remainder is the gap that life insurance will need to fill.

There are several methods you can use to estimate the amount of life insurance coverage you need:

• Multiply your income by 10: This is a quick way to get an estimate, but it doesn't take into account your family's specific needs or your savings and existing life insurance policies.
• DIME (Debt, Income, Mortgage, Education) method: This method considers your debt, income, mortgage, and education expenses. It provides a more detailed look at your finances but doesn't account for your existing life insurance coverage or savings.
• Years-until-retirement method: Multiply your annual salary by the number of years left until retirement. For example, if you are 40 years old and make $20,000 a year, you will need $500,000 ($20,000 x 25 years) in life insurance to reach age 65.
• Standard-of-living method: This method is based on the amount of money your survivors would need to maintain their standard of living if you die. For example, if you are between 41-50 years old, multiply your annual salary by 20. This assumes that your survivors can take a 5% withdrawal from the death benefit each year while investing the principal and earning 5% or more.

When should I get a life insurance policy?

The best time to get a life insurance policy is as soon as you need one. The younger and healthier you are, the more affordable life insurance is. Buying sooner rather than later can let you lock in a lower rate. Plus, the longer you wait, the more chance there is of developing a health condition that could affect your ability to get coverage.

It's worth evaluating your life insurance needs after major milestones such as getting married, having a baby, switching jobs or getting a divorce. Because these life changes can have a big impact on your finances, you may find that you need life insurance when you didn't before.

• If your spouse or partner relies on your income.
• If you're a stay-at-home parent or spouse.
• If you're a parent or grandparent with dependents.
• If you're a small-business owner.
• If you want to cover your final expenses.
• If you're a co-signer or co-owner of debt.

What is the difference between individual and group life insurance?

Group life insurance is a single contract that provides coverage to a group of people, typically employees of the same company. The employer owns the policy and pays regular premiums to the insurance company, which then provides a sum assured that is paid out to the employee's nominee in the event of their death. Group life insurance is usually inexpensive or even free for employees, as the cost is subsidised by the employer. It also does not require a medical examination or individual underwriting. However, the coverage amount is usually low, and the policy is not portable, meaning that if an employee leaves the company, they may lose their coverage.

On the other hand, individual life insurance is a policy purchased by an individual for themselves. It offers more flexibility in terms of coverage amount, duration, and customisation options. The policyholder can select the coverage amount and duration that aligns with their financial goals and add optional riders for enhanced protection. Individual life insurance policies are typically more expensive than group life insurance, as they are customised to meet specific needs. The premiums are based on factors such as the individual's age, health, and lifestyle habits. Individual life insurance policies are also portable, meaning they can be continued even if the individual changes jobs or switches employers.

In summary, group life insurance is a convenient and cost-effective option provided by employers, while individual life insurance offers more flexibility and customisation but usually comes at a higher cost. Both types of policies have their advantages and disadvantages, and it is essential to consider your specific needs and circumstances when choosing between the two.

How much does life insurance cost?

The cost of life insurance depends on a variety of factors, some of which are controllable and some of which are not. The average cost of life insurance is $26 a month, but rates can vary dramatically among applicants, insurers, and policy types.

Factors that affect the cost of life insurance

Uncontrollable factors:

• Age: Generally, younger people pay less for life insurance than older people because they are less likely to have health problems.
• Gender: Because women have longer life expectancies, they tend to pay less than men of the same age and health.
• Health: This includes any pre-existing conditions, as well as your blood pressure and cholesterol levels.
• Family medical history: If you have a family history of serious health conditions, this may increase your premium.

Controllable factors:

• Smoking status: Smokers are considered high-risk and pay more for life insurance.
• Occupation and lifestyle: If you have a hazardous job or participate in risky activities, you will likely pay more for life insurance.
• Criminal history: A history of arrests or convictions may affect your rate or disqualify you from coverage.
• Financial history: Bankruptcies or other risk factors in your credit report may increase your premium.
• Coverage amount: The more coverage you want, the higher your premium will be.

Term vs. Whole Life Insurance

Term life insurance is generally more affordable than whole life insurance because it is considered a temporary policy and does not build cash value. Whole life insurance, on the other hand, lasts for the policyholder's entire life and includes a cash value component, resulting in higher premiums.

Cost-saving tips

There are several ways to lower your life insurance rate, such as maintaining a healthy weight, managing any medical conditions, quitting smoking, avoiding high-risk hobbies, and applying early.

What factors affect your life insurance premiums?

Several factors affect the cost of life insurance premiums. Some of these factors are beyond your control, but you can take steps to lower your premium by making positive lifestyle changes and improving your health. Here are the key factors that influence the cost of your life insurance:

Age

Age is the most crucial factor in determining your premium cost. Life insurance policies are generally less expensive for younger people, who have longer life expectancies and are less likely to get ill. The cost of a life insurance premium increases by an average of 8% to 10% for every year of age. Therefore, the younger you are when you purchase life insurance, the lower your payments will be.

Gender

Gender also plays a significant role in determining life insurance costs. On average, women live longer than men, resulting in lower rates for women. Men generally have shorter life expectancies and thus pay more for life insurance.

Smoking Status

Smoking significantly increases the risk of various health problems. Life insurance companies charge smokers higher premiums, often more than double the rate for non-smokers. Insurance companies define smokers broadly, including individuals who use any nicotine-containing products, such as cigarettes, cigars, or vapes. It is important to note that lying about your smoking habits to your insurance company can lead to policy cancellation if discovered.

Overall Health

The state of your overall health can also impact your life insurance premiums. The underwriting process typically includes a medical exam that assesses vital metrics such as height, weight, blood pressure, and cholesterol. Managing serious health conditions, such as high cholesterol and diabetes, before applying for coverage can help ensure a competitive rate. Addressing controllable health issues and making healthy lifestyle choices can positively influence your premiums.

Family Medical History

Your family medical history can also affect your life insurance rates. A history of serious medical conditions, such as stroke, cancer, or other ailments that have contributed to premature death in your family, may result in higher premiums. Life insurance companies consider the health history of your parents and siblings, with some insurers weighing family medical history more heavily than others.

Lifestyle and Occupation

Engaging in high-risk activities or having a dangerous profession can also increase your life insurance premiums. If your hobbies include activities like motorsports, skydiving, or rock climbing, insurers may view you as a higher risk and charge higher rates. Similarly, working in an industry with occupational hazards can result in increased costs.

Driving Record

Your driving record is another factor that life insurance companies consider when determining premiums. A history of moving violations, drunk driving, or other infractions can lead to higher rates. The last three to five years of your driving record are typically given the most weight, so improving your driving habits can positively impact your premiums.

Frequently asked questions