You’re ready to go…
So you’re serious about buying a life insurance policy but you don’t know where to start – that is why we wrote this guide. It’s designed to help you understand how much life insurance you need, what product is right for you, and the average cost for a life insurance policy.
How much life insurance do I need?
The rule-of-thumb is to multiply your annual salary by 7 and 10, and buy the one your budget permits, but with every rule-of-thumb comes inaccuracy. An accurate alternative is to figure how much your family would need on a monthly basis to continue living their current lifestyle, then multiply it by the number of years they’ll need it. To figure how long they need the income depends on if you have children. If you have children, subtract 18 from the age of your youngest child and use that number.
For example, imagine your family’s monthly income need is $2,500 and your youngest child is 3. Start by annualizing your monthly need. To do this, multiple your monthly need by 12. $2,500 x 12 = $30,000. Next, subtract 18 from the age of your youngest child, 18 – 3 = 15. Finally, multiply the annualized income by 15, $30,000 x 15 = $450,000, which is the amount of insurance coverage you need.
If you’re married without children, use the same method to figure the annual need, then speak with your husband/wife/significant other to figure how many years they’ll need the coverage, and multiply by that number.
A rule-of-thumb in a single-income household, is to buy a policy to pay off the mortgage plus 5 years of annual salary. For households with two incomes, buy a policy that covers the mortgage plus one year of your combined annual salary.
Looking to be more specific? Use our coverage calculator. It doesn’t take long, but it’ll get you much closer to the amount of coverage you need.
Annual income your family would need if something were to happen to you
Annual income available to your family from other sources
Number of years your family would need the income replaced
Total income to be replaced
Funeral expenses, emergency fund
Mortgage and other debt
Total expenses to be covered
Savings and investments
Present amount of life insurance
Total assets (used to offset need)
Which product is right for me?
Choosing the right product could be the difference of leaving your family out in the cold, or overspending thousands for something you didn’t need. Understanding the two general life insurance policy types, and when you should buy them, is key.
Permanent life insurance last your whole life, and is commonly confused with Whole Life Insurance. It’s used to cover long-term debt obligations, final expenses, retirement income replacement, inheritance tax, and forced savings. The premiums for permanent life insurance are 2.6x compared with its counterpart, term insurance.
Term life insurance last for a period of time, usually sold in 5-year increments up to 30 years. This insurance is purchased to cover short-term debt, home mortgage, auto loans, credit card debt, final expenses.
80% of the time, term life insurance is going to be the right choice because its affordability allows you to cover your entire need. This is especially true for younger individuals because they have the time to invest the difference of what they would have paid for permanent in hopes that investment equals their total need by the time the term policy expires.
The easiest way to figure if an item should be covered with term is rather or not the obligation is less than 30 years. Any debt lasting longer than 30 years should be covered with permanent insurance. This is true in MOST cases.
If you used the calculator to figure your needs, total up all the short-term items (<30 years), and all the long-term items (>30 years) and buy one policy for each.
How much does it cost?
Regardless of the type, the cost of life insurance is based on sex, age, health and the coverage amount. Once you figure out how much insurance you need and the right product, the easiest way to get a quote is through our life insurance quote engine.
You can use the chart below for a rough estimation. It represents the cost of three common policy types, two are term (ROP and Level), and one is permanent (Universal Life). This is based on $100,000 of coverage for a healthy, 25-year old, male.
Buying the policy
Once you get a quote, the next step is completing an application. You can complete the application process online, over the phone, or in person. Sunpath offers all those options. The application is a multi-step process that ask a couple dozen personal questions including your full name, address, and social security number. Once the application is complete the underwriting process will start.
You can read more about the underwriting process here, but in short, it’s a process the life insurance carrier uses to conclude your health profile. Healthy individuals are awarded lower premiums as they’re less risk to the company. The opposite is true for less healthy individuals.
Everyone must complete a 15 minute phone interview and physical examination, while some need to submit additional medical information. That information is analyzed by an underwriter who assigns a medical class. At that time the policy will be placed and your coverage will last for term or life.