Life insurance is not the most fun topic to discuss, but it is important. Life insurance can give you and your loved ones the peace of mind that they are protected if something should happen to you. Whether you have a spouse or are single, have three kids, or none, life insurance is something to consider.
Continue reading to learn more about life insurance, the different life insurance plans that are available, and how much you could look to spend on a policy.
The basics of life insurance
Life insurance is a contract between you and an insurance company saying that if you were to pass away, in exchange for your premium payments, the company would pay your beneficiaries a lump-sum payment. This payment is known as a death benefit. You name your own beneficiaries when you open the life insurance policy. If you are married or a parent, typically your spouse and/or children would be your beneficiaries. If you’re single, it could be siblings or parents, but ultimately you can name whoever you’d like.
There are multiple types of life insurance plans, which we will review below. Please note that death benefits received from a life insurance policy may be income tax-free.
Types of life insurance plans
To help you understand life insurance a little more, here are the most common types of plans you can purchase.
- Term Life Insurance – This plan provides financial protection for a certain number of years. The premium stays the same for the coverage period you choose and if you don’t pass away within that period, the policy expires with no payout. If the period expires, you may continue coverage but the premium usually increases. Generally, this plan is less expensive than permanent life insurance. This type of plan is what is offered by SafeAuto’s partner, Bestow, and the term periods offered are 2, 10 or 20 years.
- Permanent Life Insurance – Permanent life insurance plans do not expire and contain the death benefit, as well as a savings or investment portion. There are multiple types of permanent life insurance plans.
- Whole Life Insurance – This plan is the most common type of permanent life insurance and provides (you guessed it!) coverage for your whole life. This plan typically has higher premiums than term life plans and the premiums are usually fixed. Every time you make a premium payment your cash value increases and you can access the money while you are still alive. The money can be withdrawn or borrowed against and used for large ticket items or life events.
- Variable Life Insurance – Variable life insurance provides coverage for the insured’s entire life, but instead of having a savings component, variable life insurance plans have an investment component. The cash value account that is created is invested in sub-accounts in the policy. These sub-accounts are similar to a mutual fund but are only available within the insurance policy. The cash value account can grow or shrink as the investments grow or shrink.
- Universal Life Insurance – A third, and more flexible, type of permanent life insurance plan is universal life insurance. This plan offers both investment savings and low premiums, and a policyholder can adjust their premiums and death benefits along the way. The premiums are comprised of a cash value savings component and the cost of insurance. The cash value savings component is similar to the one in a whole life insurance plan but a policyholder may pay taxes on withdrawals. The cost of insurance is the minimum amount of the premium payment that is required to maintain the policy’s active status.
Cost of life insurance and what affects it
Trying to figure out life insurance pricing is difficult because so many factors come into play. In addition to the large number of providers that offer life insurance, there’s also different term lengths and coverage amounts. Of course, there are also personal factors that are looked at, with life expectancy playing a large factor. Things like gender, age, health and whether you are a smoker all affect life expectancy. With that being said, NerdWallet has provided some generic costs which we’ve listed below.
- The average yearly cost for a 30-year-old woman to start a 20-year $250,000 term life insurance policy is $133 while starting a $250,000 whole life insurance policy costs $1,904. For a 50-year-old woman, starting a 20-year $250,000 term life insurance policy costs $364, while starting a $250,000 whole life insurance policy costs $4,262.
- The average yearly cost for a 30-year-old man to start a 20-year $250,000 term life insurance policy is $150 while starting a $250,000 whole life insurance policy costs $2,145. For a 50-year-old man, starting a 20-year $250,000 term life insurance policy costs $465, while starting a $250,000 whole life insurance policy costs $4,990.
The bottom line.
The 2017 results of a Center for Disease Control and Prevention study showed that the average life expectancy of women in the United States is about 81.1 years, while the average life expectancy of men in the United States is about 76.1. This means that if a woman and a man are the same age and have similar risk factors with their health, the woman will always pay less because her life expectancy is longer.
There are so many options for life insurance plans, so when it comes time for you to consider purchasing one, make sure it’s the right fit for you and your family. Whether it’s 10 or 30 years, term or permanent, there’s probably something that fits your needs and your wallet. Ask questions and do your research, and if you need some assistance, SafeAuto is here to help. Give us a call and we can connect you with a life insurance professional.