As an independent life insurance broker, I hear from potential clients ask the question, how much does life insurance cost? I really wish there was a simple answer to the question but there is not. It is like asking a realtor how much does a house cost? The answer will vary from $30,000 to $30 million depending on the house you are talking about. The same is true with life insurance; there are a lot of factors to consider in determining a price better known as a premium quote. Let’s break it into categories.
The first set of criteria to determine is the need for life insurance. If you died today how your loved ones would be affected? Do they count on your income? Would they have debt like a mortgage, car payment, credit cards, etc.? Would they have money saved for the children’s education? Could they afford your final expenses like medical bills not covered by health insurance, taxes and fees or funeral expenses? Here is a great way to total up these numbers using life insurance math to determine a face amount needed for the quote of premium.
The next set of criteria needed once you know the face amount or death benefit to be paid to your beneficiary is the type of insurance. There are two basic types of life insurance. The first and most popular is term life insurance. This is life insurance needed to create an instant estate and solve an immediate issue in case of sudden death. These have a time limit of level premium or locking in your rate for a period of time like 5-10-15-20-25-30-35 years regardless of change in health, residence or employment. The second type of life insurance policy is the cash value policy. These are by popular names like whole life and universal life. A whole life policy as the name suggests is designed to lock in your rate for your whole life. For more details please read Life insurance 101.
The next set of criteria needed has to do with you personally. Just to run a quote to get in the ball park of how much life insurance costs the life insurance agent will need the following:
Type of Insurance-Face Amount-Age-Height-Weight-State of Residence-Nicotine Use-Health Status
This information is needed by the agent to get close. The underwriters are going to need even more information.
The last set of criteria is the additional information needed by the underwriting company to determine your individual risk of mortality to set your premium for the face amount and time period you have selected. They will typically send out an independent nurse called a paramed to ask specific health questions of your history. They will collect your height, weight, blood pressure, blood and urine samples and can even collect an EKG strip depending on age and face amount. This specific data helps them determine your risk category for your premium. They will also ask financial questions such as annual earnings and net worth to determine the correct face amount is not too high.
Please understand if a life insurance agent looks at you puzzled when you ask the question how much does life insurance cost, you now have a basic understanding of why the puzzled look. Good luck in finding your best product at your best price to protect the ones you love and that count on you.
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Tim Wilhoit is owner/principal of Your Friend 4 Life Insurance Agency in Nashville, TN. He is a family man, father of 3, entrepreneur, insurance agent, life insurance broker, salesman, sales trainer, recruiter, public speaker, blogger and team leader with over 27 years of experience in sales and marketing in the insurance and beverage industries.