Vital for the protection of a family, Life Insurance is an absolute necessity in case of an accident or sudden death. Life Insurance will protect and aid the family financially if you or your loved one would pass away. Thousands of people are avoiding life insurance because they do not understand how it works. Life Insurance costs can be complicated but with a little explanation you will understand them deeply.
Basics of Life Insurance Costs
There are many factors that determine the premium you pay every term. A premium is a specified amount that you are required to pay for your life insurance. Most Insurance companies look at three basic aspects of life to determine your premium:
- Age - Obviously, those who are older in age are more prone to die of disease and natural causes. While age is a fairly important factor, its impact on life insurance costs has declined with the increase in younger fatalities due to various ways.
- Gender - Sorry guys, but according to statistics, men on average die six years earlier then a woman. While this is subjective case-by-case, men believed still pass away earlier then women. It is believed that men are subjected to strenuous work that wears down there bodies.
- Use of Tobacco - Simply put: do you smoke or chew? Tobacco use is a leading cause of death largely due to its increase of lung cancer, gum disease or other related diseases. Tobacco use can drastically increase the cost of life insurance.
These are the three basic factors of calculating life insurance costs. Other more minor personal/social factors are: History of heretic diseases, Alcohol consumption, location, occupation, and past drug consumption.
Term Life Insurance Costs
After evaluating your social habits and your personal history you are grouped into a specific demographic. To calculate your premium, your insurance company will use mortality charts to calculate the base amount you will pay. For example:
The most recent US mortality tables estimate that approximately 3.5 in 10,000 non-smoking males aged 25 will die during their first year of coverage. Generally, mortality rates double for every ten years of life after this age.
Using a general policy amount of $100,000 of coverage, the Insurance company will need to charge at least $35 per policy to pay out the coverage (3.5 x $100,000 {per person) / total number of policy holders). This is only for a ten-year plan and is also based off of a term life insurance policy. Permanent Life Insurance polices are a little different.
Permanent Life Insurance Costs
While term life insurance polices calculate costs based on the likelihood of death, permanent life insurance costs are calculated based on straight percentages. Permanent Insurance policies remain intact unless the policy matures or the owner fails to pay the premium when it is due.
Permanent Life Insurance is a complete 180 from term life insurance. Costs are based almost completely on the policy value. Permanent Life insurance policies gain cash value similar to an investment. Therefore the premium of a policy valued at $1,000,000 is a lot higher then $500,000 regardless of age.
Permanent Life Insurance polices eventually can still provide coverage if the amount in the policy has reached its face value, but no payments are being made anymore. For example, all the money you have put in, plus the interest accrued reach the face value or coverage amount. After that you do not need to keep paying into the policy and can actually withdraw money yourself even if you are alive in most cases.
Closing
Most insurance polices are affordable because the policy holders keep the face value of the policy based on their income. There are advantages to both permanent life insurance and term life insurance but both can be disadvantages if proper time and effort isn’t put into choosing the best policy for the family or individual.
Costs of life insurance are actually leveling out with the new healthcare bill passed. Life Insurance policyholders also have to abide by new provisions and cannot overcharge for coverage anymore. Life insurance is a must have and there are plenty of calculators available to give you an estimate on your life insurance costs and plenty of other resources to compare life insurance costs.