Affordable Life Insurance Protection for Your Family
You’ve decided to purchase a term life insurance policy. And, you may have used an online life insurance calculator to figure out how much coverage you need.
Congratulations! You’ve taken an important step toward getting a new policy.
Now, you just need a price quote. But before you start comparing the best prices for your insurance, think about two important things:
Many shoppers for term insurance policies think they can purchase any amount of coverage they want, whether it’s $50,000 or $5,000,000 of coverage. But, life insurance doesn’t work that way.
You Must Qualify for Life Insurance
Underwriting – You may have heard about life insurance underwriting, it is a process by which you find out if you qualify for a policy based on your personal information which includes your answers to the questions asked on the application for coverage, your results of a medical exam, and other factors considered when underwriting an applicant for life insurance; such as, your driving record, occupation, hobbies and lifestyle.
The insurance carrier needs to analyze this information in order to verify whether or not you are in good health before issuing you a life insurance policy.
The underwriting process helps the insurance company determine if they should insure you, how much insurance they may offer you, and at what rate per $1,000 of coverage.
Qualify – However, you also have to qualify financially for life insurance.
The reason for this is simple: The insurer wants to prevent an excess coverage situation that may give rise to suicide of the insured to leave money for his or her family members.
Although there is a suicide exclusion in life insurance policies if the insured dies from suicide occurring within the first two years of being insured (one year in some states), the insurance company does pay out death benefits if the insured dies from suicide after two years.
Also, the insurer needs to make sure that if you die, your total coverage amount doesn’t exceed your beneficiary’s economic loss. This is how they protect themselves financially and, in turn, can keep life insurance premiums at a reasonable level.
The main purpose of life insurance is to protect something: your family, business or estate are just a few examples.
The insurance policy’s death benefit is the amount of money the company pays your beneficiary if you die while your policy is "In Force".
The money from your insurance can do many things, such as:
Amount of Life Insurance You Can Buy
Life insurance companies use a multiple of your annual income as a basis for the amount of coverage you may qualify to purchase.
For example, many insurers may limit the amount of coverage you may purchase up to 15 to 20 times your annual income.
This is the total amount of available including all other policies you may currently own.
Example of How Much
Coverage You May Qualify to Buy
Using the numbers stated above, if you are age 35 and make $50,000 a year, you should qualify for up to $1 million of total life insurance. That’s total, as in, combined with any other policies you already have and intend to keep.
However, this is just a starting point. The life insurance company may also consider other factors, such as your net worth, asset portfolio or business operations to determine if you can qualify for more than this amount of protection.
For example, you may make $50,000 from your current job; however, you may have inherited a lot more, or retired from another career where you made (and saved) much more than might be expected from someone with an annual salary of $50,000.
Most life insurers will not ask for proof of income for smaller policies.
Additional requirements like this usually are required for policies of $2 million and up. For these larger policies, you may be asked to provide additional financial information, such as:
Life Insurance for Your Non-Working Spouse
Insurance companies understand the importance of coverage for your spouse, too. So, most have guidelines in place to cover you if you don’t have an income of your own.
These rules may range from 50% of the spouse’s life insurance amount all the way up to 100%.
There are usually limits on the maximum amount of coverage allowed for non-working spouses, with the most common being around $1 million.
Know Your Number Before You Apply for a Policy
When you decide to apply for term life insurance, have some idea of how much coverage you need so you are purchasing the right amount of coverage based on your situation.
How to Determine Your Need for Life Insurance
Use a term insurance needs calculator which takes into consideration your assets, liabilities, savings, debt, income, and financial goals and responsibilities.
Life Insurance Need Based on Several Factors
There are several things to consider to help you in deciding how much coverage you need, including:
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