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Life Insurance: What Should I Expect?

5 min

Have you considered buying a life insurance policy but are still unsure which type fits your needs best? If yes, rest assured that you are not the only one.  

Statistics by the Insurance Information Institute show that in 2021, more than 100 million Americans will lack any individual life insurance policy. Looking at even more complex numbers, we can see that the average face value of individual life insurance policies in the US was around $73,000 in 2019. The total premiums written for these policies that year were approximately $153 billion, with an average of $426 per year.  

The National Association of Insurance Commissioners (NAIC) also claims that around 70% of American households have some form of life insurance, with term life insurance being the most popular type. While this is a significant number, there's still one problem: It is estimated that around one-third of American households have insufficient life insurance coverage to meet their needs. 

Life insurance is a crucial aspect of financial planning, as it protects your loved ones in case of your untimely death. When it comes to the amount and type of life insurance you need, they both depend on various factors, such as your age, income, dependents, and overall financial situation. 

You're probably wondering which life insurance type is best for you. Read along to see the different types of life insurance policies and the respective cost of each. 

First, what is life insurance? 

Life insurance is a contract between an individual and an insurance company in which the individual pays a premium in exchange for the insurance company paying a specified benefit to designated beneficiaries following the individual's death. These beneficiaries are usually the insured's family members and loved ones. 

Why should you consider buying a life insurance policy?  

The primary purpose of life insurance is to provide financial protection for the insured's loved ones in the event of the insured's death. This protection is a death benefit, a lump sum of money paid to your beneficiaries upon death. The death benefit can cover funeral costs, outstanding debts, and ongoing living expenses for your beneficiaries.  

As such, life insurance's purpose is to provide financial security for your loved ones, even if you can no longer provide for them. Life insurance ensures that your loved ones are financially cared for after you're gone. It is there to give you peace of mind that your absence will not financially strain your family and loved ones. 

Life insurance differs from other insurance types in several ways: 

  1. It provides financial protection for your beneficiaries in the event of your death. Different types of insurance, such as health, auto, and homeowners insurance, protect specific assets or against particular risks.  

  2. Regarding cost, life insurance can vary widely depending on the policy type and the coverage amount. Still, it is generally less expensive than other types of insurance. 

  3. Finally, life insurance policies typically require a medical exam and can have waiting periods before coverage takes effect. 

However, before considering buying life insurance, you should clearly understand its different types.

Life Insurance: Types 

There are two main types of life insurance: term life insurance and whole life insurance. 

Term life insurance covers a specific time, usually between 10 and 30 years. It is the most affordable type of life insurance, making it a popular choice for people who are just starting their families or have limited income. The premium for term life insurance remains the same throughout the term, and the death benefit is paid only if the policyholder dies during the term. 

Whole life insurance, or permanent life insurance, covers the policyholder's entire life. The premium for whole life insurance is higher than that for term life insurance but also builds cash value over time. This cash value can be borrowed against or used to pay premiums. The death benefit for whole life insurance is paid whenever the policyholder dies. 

The amount of life insurance you need depends on your specific circumstances. A general rule of thumb is to have enough coverage to provide for your loved ones for at least 10 to 15 years. This typically includes covering expenses such as funeral costs, outstanding debts, and living expenses for your dependents. 

To determine the appropriate amount of life insurance for your needs, consider your income, outstanding debts, and the number of dependents you have. It's also important to consider your future financial goals, such as saving for your children's education or paying off a mortgage. 

One way to estimate the life insurance coverage you need is to use the "multiple of income" method, which suggests that your life insurance coverage should be between 5 to 10 times your annual income. For example, earning $50,000 annually, you should consider life insurance coverage between $250,000 and $500,000.

Life Insurance: Cost 

The cost of life insurance in the United States can vary widely depending on many factors. These factors include the type of policy, the amount of coverage, and the age and health of the policyholder. 

One of the most critical factors determining the cost of life insurance is the type of policy. Term life insurance is generally less expensive than whole life insurance and provides coverage for a specific period, usually between 10 and 30 years. On the other hand, whole-life insurance is a permanent policy that covers the policyholder's entire life and typically includes a savings component. 

Another critical factor affecting the cost of life insurance is coverage. Naturally, the more coverage you need, the more expensive the policy will be. Life insurance costs also increase as you age since the risk of death increases. 

In addition, the cost of life insurance is also influenced by the policyholder's health. Policyholders in good health and have no pre-existing medical conditions will typically pay less for life insurance than those in poor health or pre-existing conditions. This is because healthy policyholders are less likely to need life insurance as severely as those who suffer from certain medical conditions. 

On average, the cost of a term life insurance policy for a healthy 30-year-old can be as low as $15 per month for a $250,000 policy. A whole life insurance policy for a healthy 30-year-old can cost around $50 per month for a $250,000 policy. However, the cost of both term and whole life insurance policies can increase significantly for older policyholders or those with pre-existing medical conditions. 

So, what should you expect when signing up for life insurance?

Life insurance is essential to financial planning as it provides financial protection for your loved ones in case of your untimely death. If you are planning on signing up for life insurance, you should remember that there are two main types of life insurance: term life insurance and whole life insurance. Regardless of the type you choose, rest assured that it will provide you with peace of mind, a sense of financial security, and a safety net for your loved ones when the inevitable happens.

The amount of life insurance you need depends on your circumstances, so it's sometimes essential to consult a financial advisor before buying these policies and review and update your coverage as your circumstances change. 

If you want to sign up for a specific insurance policy, check out Asteya's website to learn more about our different insurance policies, including life and income insurance! 


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