Calculators: They’re great. Whether you were using them to type juvenile messages in elementary school or playing games on your fancy graphing calculator in calculus class, they’ve always helped you… well, goof off. (We’ll also assume they also helped you add, subtract and create sine wave graphs.)
Anyway, it turns out a life insurance calculator is also both fun and useful, assuming your definition of fun includes making sure your loved ones are protected if something happens to you. But let’s focus on the useful: Spending a few quick minutes with a life insurance calculator is the easiest way to help determine how much coverage you need and for how long, while also keeping you from overpaying for coverage you don’t need.
Let’s break it down.
How a life insurance cost calculator works
Broadly speaking, life insurance works by getting a large number of people to pool their money together with one insurance company. That life insurance company then manages the money, paying out a set amount to people if the worst should happen. To make this all possible, the insurer makes actuarial calculations about how long people will live, and how much money they might need according to the value of their estates and their level of income.
It’s complicated, but fortunately, you don’t have to worry about all that. You need only concern yourself with what’s right for you and your family, based on your age, your health, and your financial needs. That’s where the calculator comes in.
Simply put, you’ll provide some information about yourself into the calculator that will help the insurer make those actuarial calculations. With an online calculator, the answers are estimates intended to guide your decision-making. When you apply, your final rate will be based on your application and third party data obtained during underwriting. Here are some of the things you’ll need to provide:
- Your gender
- Your date of birth
- Where you live
- Whether you smoke or use other nicotine-containing products
- An overall self-assessment of your health (average, good or excellent)
- Your annual income
- The size of your family and the age of your partner and/or kids
- How much debt you have, if any (This includes mortgages, student loans, etc.)
And that’s it! Essentially, the calculator is looking to sort out the range of coverage you may need given your financial situation, taking into account your family’s income, debts and living expenses, and the money or coverage you already have (including any life insurance policies).
The calculator uses this to determine what’s called a “coverage gap” — essentially, the total amount of life insurance coverage your family would need if something happened to you. With term life insurance, which covers you for a specific duration — the coverage term — the calculator is also determining how long you will need coverage.” These two figures will be used to decide how much coverage and the coverage duration you may want to consider — for example, a 30-year, $1 million term life insurance policy. (If you’re wondering more about how much life insurance you need, check out our helpful article titles How much life insurance do I need?)
The cost of life insurance
According to a 2015 study by LIMRA — an organization that tracks such things — most people overestimate the cost of a term life insurance policy by 200 or even 300 percent. This means that getting a policy might be cheaper than you think. This is why term life insurance policies often appeal to those interested in affordability or in purchasing coverage for the time you expect to need it the most, such as for the duration of your mortgage or through the time your children are in college.
If you’ve decided to purchase a term life insurance policy, in order to determine the cost of your policy (your rate), the calculator will consider these factors:
Because, obviously, the younger you are, the longer you are likely to live — which means you can pay a lower premium over a longer period of time.
The healthier you are, the less of a risk the life insurance company is taking on, which results in a lower premium to you.
How much coverage you need
More coverage equals higher premiums. It’s that simple.
If you’re paying premiums over 30 years, rather than 20, you will likely pay less per year. (Learn how to choose the right life insurance by age here.) For example, a 35-year-old man in excellent health could purchase a 30-year, $500,000 Haven Term policy issued by MassMutual for less $42 a month. That term length would see a 1-year-old child through college — and the insured close to retirement.
What kind of life insurance should you get?
Another factor that affects cost: What type of insurance you get. Everything we discussed so far pertains to term life insurance, but many people opt for permanent life insurance. A common type of permanent life insurance is whole life insurance. Unlike term life, whole life insurance provides coverage for your entire life and includes a cash accumulation component known as the policy’s cash value that can grow over time. This type of coverage is generally more complex and significantly more expensive than term life insurance and may require the assistance of a financial professional or life insurance agent to purchase.
Term life insurance is a simpler proposition than whole life insurance. You determine how much coverage you need and for how long. Your rate is set based on the factors above. You pay in for the length of the term, and if something happens to you, your family will reap the benefits of your foresight.
Choosing your policy
Life insurance is a highly-regulated industry, and you certainly have options. Obviously, you want to do what’s right for your family and your budget. You also want to consider the financial strength of the issuing company and the convenience of the application process.
That sounds a lot like Haven Life, a life insurance agency backed by industry leader MassMutual, the issuer of the Haven Term policy. MassMutual has a long history of financial strength and Haven Life offers the simplicity of an online application process for term life insurance and consistently great customer service reviews.
If you want to learn more, you can get started here with Haven Life’s super-useful online calculator to determine how much coverage you need, and not pay a penny more than that.
Louis Wilson is a freelance writer whose work has appeared in a wide array of publications, both online and in print. He often writes about travel, sports, popular culture, men’s fashion and grooming, and more. He lives in Austin, Texas, where he has developed an unbridled passion for breakfast tacos, with his wife and two children. This article is sponsored by Haven Life Insurance Agency. Opinions are his own.
Haven Life Insurance Agency offers this as educational only, and the information provided is not written or intended as specific legal advice. Haven Life Insurance Agency does not provide legal advice. Individuals are encouraged to seek advice from their own legal counsel.