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The Cost of Life Insurance: Learn What You Need in 2019

life insurance

There’s a joke in the insurance business: “fun is like life insurance. The older you get, the more it costs.” Many Americans today don’t have life insurance, often citing cost as the main factor.

But life insurance is designed to protect those financially dependent on you from incurring huge losses in the event of your death.

Do you have people who depend on you financially? What would happen to them if you passed away?

There are two types of life insurance: term and permanent. In a term life insurance policy, you can set the term limits of your coverage and the amount to be paid out in the event of your death, or a “death benefit.”

Paying your life insurance premiums will allow your insurer to pay your loved ones in the event of your death, often in a lump sum.

Permanent life insurance policies, which include universal life, variable life, and whole life, cover you for the entirety of your life. These types of policies are essentially savings accounts that accumulate guaranteed interest or a “dividend.”

These dividends, often referred to as “cash value” are tax-free. Permanent life insurance policies are often far more expensive than term policies, however, costing up to 10x more.

While it’s not a pleasant topic to think about, it’s best to plan ahead even for the worst case scenarios. As we all know: the only thing certain about life is life’s uncertainty.

The cost of life insurance varies depending on your age, where you live, what you do for work, and more. But the largest influence on your life insurance premium is your overall health.

Do you smoke? What is your weight-to-height ratio? These questions seem a bit invasive, but it’s how insurance companies determine the premium you pay on your life insurance policy.

For instance, did you know that smokers pay 3x more for their life insurance than non-smokers? That’s a premium 260% higher than a non-smoker’s.

At 25 years old, the average non-smoker will pay $23 per month on their life insurance premium, roughly $274 per year. For a smoker of the same age, premiums increase to $70 per month at roughly $831 per year.

If you ever needed a reason to quit, look no further than your premiums going up in smoke.

In order to qualify for an affordable life insurance premium, insurance companies expect policy purchasers to have no tobacco or marijuana use within 5 years of underwriting the policy, no serious medical conditions, cholesterol levels below 210, and blood pressure at or below 135/85.

People tend to purchase 20-year life insurance policies worth roughly $500,000, eschewing their shorter 10-year counterparts despite having to pay higher annual rates.

Most policies range between $250,000 and $1 million. Customers that purchase 30-year plans are offered more flexibility and forgiveness.

If you are underwritten when you are healthy and young, and then become old and unhealthy later in life, you still pay the same premium. Basically, the younger and the healthier you are, the cheaper your life insurance will be.

You may be asking yourself: if I’m young and healthy, with no financial dependents, why do I need to purchase life insurance?

There are several reasons life insurance can be helpful even if you don’t have children or other financial dependents. As Forbes writer Steve Parrish points out: life insurance is an investment. 

Due to the tax benefits of life insurance, wealthy families are able to shield their wealth from federal transfer taxes that charge 40% on transfers.

Death benefits paid out by insurance companies after the insured’s death are income tax-free as well.

Parrish also points out that you can plan for retirement by directing your premiums into cash value rather than allocating them into a death benefit, stuffing the insurance product with tax deferred cash value during one’s working years and then allowing that policy to become a source of income upon retirement.

Life insurance is also useful for new homeowners (alongside a home insurance policy) because they can buy a life insurance policy to cover mortgage debt, thereby protecting interest and avoiding the need for mortgage insurance.

If you’re a beginning family, it’s wise to purchase life insurance early on to avoid incurring higher costs later in life. Even if you don’t have children but are married, life insurance can help protect your partner in the event of your death from incurred costs.

Life insurance can also shield your loved ones from debt-related costs if you die in debt. Consider the case of someone with severe student debt: how would their family be able to handle that debt in the event of their death?

Consider also the case of the small business owner. Most small businesses are required to purchase life insurance, but even so: what would happen to all your employees if you passed away? Everyone would lose their jobs.

Look, we get it: thinking about death is depressing. When you’re young, healthy, single, and debt-free, life insurance seems like the least of your concerns.

You’re more worried about that Tinder date you have lined up later. But life comes at you fast and tragedies do happen. Ask your insurance broker about life insurance coverage today. At Frontlight, we’re here to help you plan for the worst so you can live your best.