COVID has largely been a contributing factor in individuals’ decisions to purchase life insurance, yet these policies remain a foreign concept to a lot of citizens who don’t believe they have the funds available to invest. It’s a policy that provides peace of mind for yourself and your loved ones, but if you’re unfamiliar with life insurance, you’re likely questioning how much you need and how much you should pay. Fortunately, we’re here to help you understand the keys to calculating how much term life insurance will cost.
How Much Life Insurance Should I Purchase?
When we discuss the amount of coverage you intend to purchase, we’re referring to the death benefit that would be provided to your life insurance beneficiaries if you pass. For example, if someone is investing in a 10-year term life insurance policy with a death benefit of $1 million, that means that if the policyholder passes within 10 years, their beneficiaries will receive $1 million. When it comes to how much you should purchase and the ensuing costs, the answer is, “It depends.” The goal is to provide your family with the financial support they need if you were suddenly no longer able to support them.
Calculating Your Ideal Life Insurance Coverage
To calculate your insurance costs, you first need to uncover your existing assets and debts and any future expenses your family will incur. In the insurance world, the standard method of calculating these values is by using the DIME formula, which stands for:
- Debt: Other than your mortgage, you should add up your debts – such as any business loans or outstanding medical payments. You should also estimate your funeral expenses.
- Income: Determine how many years your family would need financial support following your passing and multiply that number by your yearly income.
- Mortgage: Figure out how much you still owe on your mortgage or how much in rent your family will need.
- Education: If you have children, determine how much it will cost for them to go to school and college.
After calculating your debts and expenses, you can subtract your liquid assets – such as savings accounts, work-sponsored life insurance, and existing college funds – to decrease your premium.
How Much Will My Life Insurance Cost?
According to Business Insider, the average cost of life insurance varies from $40 monthly for a variable life policy to $55 for a universal policy. Of course, this varies for every individual. Your age and health status are significant contributing factors to the price of your policy. The older you are, the more comorbidities you have, and the riskier your activities, the higher your monthly payment. Also, the length of the term and coverage amount are going to affect your premium amount. The best way to receive an accurate estimate of your premium is to relay your needs to an independent agent.
Calculating how much life insurance will cost comes down to crunching the numbers. You need to look at your living expenses, salary, and debts. It can seem complicated at a glance, but if you work with the right agency, you’ll become surprised by how simple the process is. At TJ Woods Insurance, our agents have the knowledge and experience to ensure your family is covered by the appropriate life insurance in the event of a tragedy, even during COVID. If you’re looking to take the first steps to protect your family’s financial future or your current term life policy is expiring, don’t hesitate to contact us.
