Life these days is about finding the right balance, the perfect blend of work and play, needs and wants, saving and spending.
You’ll face the same type of decision-making when shopping for life insurance. Too little coverage can leave your family underinsured, too much can have you overpaying for your individual needs.
Do I need life insurance? Consider: If the unexpected happened, and your family faced a future without you, your policy should be enough to replace your income for 5 to 10 years. How much life insurance should I buy? If you earn $100,000 a year, $1 million in coverage may be just about right. And even if you earn less than that, there’s the mortgage, auto loans, and the cost of sending your kids to college to consider.
Most of us would leave behind financial responsibilities, which is why it’s important to balance them with just the right amount of life insurance coverage to help protect your loved ones.
What to Know When Shopping for a Life Insurance Policy
In addition to determining how much coverage you want to buy, it’s important to shop around and understand what you should factor into your policy decision making. Term life insurance is a pretty easy-to-understand product. But, there are a few best practices when shopping to ensure you choose the right policy and insurance provider for your financial situation.
If you’re thinking about buying $1 million in coverage, it’s important first to find out if you’re eligible. A combination of your age and salary information helps an insurer determine if you qualify for the amount of coverage you’re seeking. For most insurers, the maximum is anywhere between 10 to 30 times your annual salary with some variation based on your age. Typically, the younger you are, the higher your coverage eligibility is.
Most of the time, you’ll have no problem qualifying for the coverage you’re seeking if you’re employed (and assuming you’re eligible for coverage with your current health.) The situation can become a little more challenging if you are a student, unemployed or a stay-at-home parent. In these scenarios, you may want to work directly with the insurer to determine the coverage they’ll offer.
Additionally, you should use your income as a barometer for how much coverage you really need. If you earn $30,000 a year, for example, $1 million in coverage might be excessive.
Rather than trying to guesstimate, an online life insurance calculator can help you find your ideal coverage and eligibility. This way, you can properly gauge your family’s needs without having to do any air-math during the process.
Life insurance needs aren't one-size-fits-all.Calculate your needs
Determining Life Insurance Needs
Along with the frequently used rule of thumb to secure coverage that’s 5 to 10 times your salary, you should make sure that your coverage is enough to help account for:
- Your mortgage and other significant debts
- Child care and dependent expenses
- Cosigned debts
- Health care costs for a non-working spouse
- The cost of a funeral and final expenses
After considering how your family could afford these expenses without your income, you might find that $1 million in coverage is just right. Again, a life insurance calculator can factor in all this information to provide a recommendation based on your family’s situation.
You purchase coverage to help financially protect your family in the worst of times. Therefore, it’s important to choose a company that you’re confident will be around for the life of your policy. Life insurance ratings can be a great tool in helping to determine this.
Life insurance companies receive ratings from independent agencies based on their financial strength, as well as the rating agency’s assessment of the company’s claims-paying ability.
So, what that really means is that insurance company ratings help indicate if your insurer will be around and pay out the policy if anything were to happen to you.
For example, at Haven Life, our Haven Term policy is issued by MassMutual, which is rated A++ by A.M. Best*. That’s the highest rating available from A.M. Best.
The Buying Process
Depending on the approach you take, buying life insurance can be a real drain on your time. Traditionally, the approval process would take weeks, require several phone calls – maybe a fax or two – all with the hope of being eligible for coverage.
Modern technology has revolutionized the buying process. It’s now easier than ever to select the right coverage amount, apply entirely online and receive an instant decision on coverage.
If you can set aside a little time today, you could find out if you’re approved, how much it’ll cost and potentially start coverage.
The online application will ask about your income, your family structure, and your health. Answer each question openly and honestly for the most accurate pricing and results.
The Price of a $1 Million Life Insurance Policy
It may surprise you how affordable $1 million in coverage can be. A healthy 35-year-old woman could purchase a 20-year, $1 million policy for about $33 per month. That’s a little more than $1 per day. Not a bad price for a significant amount of peace of mind.
And remember, pricing for coverage is affordable the younger and healthier you are. That’s why, if you know you need coverage, you’ll want to lock in your lower rate now.
Rates are also impacted by the term length of policy you choose. A 30-year term costs more than a 20-year or a 10-year term.
The bottom line: Your age and health, the amount of coverage, and the length of your policy will all impact how much you pay for coverage each month.
Choosing the Right Term Length
Once again, it’s all about balance.
A longer term policy will cost more, but it also lets you use your current age to lock in a lower rate for a longer period of time. A shorter-term policy costs less per month for now, but when it expires, you may still be in need of coverage. In that scenario, you’ll need to buy more at a higher rate because you’ll be older.
A life insurance calculator will take into consideration the ages of your dependents as well as your debts to provide a recommended term length so that you aren’t underinsured or overpaying for coverage.
Some people compromise by buying two policies. One shorter-term policy with higher coverage, to have in place while your children are young. And, then one longer-term policy with less coverage that will extend into your empty-nest years. That way you could take advantage of the low rates that come along with being young but avoid having more coverage than you need as you age.
Buying a Policy Without a Medical Exam
Most fully underwritten term life insurance policies do require a medical exam to finalize coverage.
However, there are some scenarios where applicants won’t need to take a medical exam. At Haven Life, we offer InstantTerm, a first-of-its-kind process that allows some applicants to skip the medical exam.
Once an application is submitted, Haven Term applicants will know if a medical exam is needed to finalize coverage. In most cases, you will have coverage in the time between application submission and when we receive the medical exam results.
You Don’t Have to Predict the Future
Many people buy life insurance policies worth $1 million, and it’s exactly how much coverage they need to protect their family financially. But, not everyone needs that much coverage. More isn’t always more.
When deciding to buy life insurance, you must thoughtfully consider how much money your family would need if you were no longer around. Fortunately, online tools are available to make choosing the ideal amount of coverage as simple as possible.
Predicting the future is hard. None of us knows what’s beyond the horizon. But by being proactive and taking advantage of the technology at your disposal, you can financially protect your family’s future with not only ease but confidence.
So keep striving for a well-balanced life, and keep leaving good tips at that coffee shop; it makes for a happy barista. And remember that a similar amount of money could help take some of the guesswork out of your family’s financial future.
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*Rating is as of June 1, 2017, and is subject to change. MassMutual has also received high ratings from other rating agencies.