The American Council of Life Insurers recently stated that as many as 35 per cent of US families had no life insurance. In difficult economic times, insurance premiums are one of the areas that families tend to cut back on. Using a life insurance calculator can help to optimise coverage. Taking out term insurance rather than permanent insurance can help save money whilst providing valuable protection to dependents.
How Much Life Insurance Coverage is Needed?
According to the The New York Times, "The life insurance industry’s rule of thumb [for coverage] is 10 times annual salary for an individual." The level of coverage needed will depend on a number of factors, such as the number of dependents, marital status, personal debts and the value of investments. It will depend upon affordability and the type of life coverage selected (term insurance or permanent insurance), especially as insurance premiums rise with age.
Robert Hunter, director of insurance for the Consumer Federation of America, stated that: "You want to make sure a child is protected. That’s a considerable amount of money when you consider education, food, housing and vacations. The nice part of it is that once your child begins to grow up and graduates from college, you can buy less life insurance.”
Do Life Insurance Calculators Help Reduce Insurance Premiums?
Insurance calculators:
A life insurance calculator, available at lifehappens.org, can help a family to work out how much coverage is needed. Inputting the relevant information provides a useful financial assessment that allows a family to optimise the level of life coverage taken out. Too much coverage is wasteful, but too little insurance can potentially compromise the financial security of dependents.
Insurance aggregators:
Insurance aggregators, available at insure.com and insweb.com, allow a family to calculate the optimal value of insurance when taking into account the value of savings and investments. The objective is to withdraw less from investments than is achieved through capital and income growth.
Term Insurance or Permanent Insurance?
Permanent insurance provides life coverage for the 'whole of life', whereas term insurance provides coverage for a set period of time. The latter type of life insurance is vastly cheaper because the incidence of death increases with age. It is important to consult an advisor before making a decision as to which type of life coverage is needed as permanent insurance may have been taken out to pay any estate taxes.
Optimising the level of life insurance is critical as it allows a family to strike that important balance between adequate insurance coverage and over-payment. It is possible to save money by opting for term insurance rather than permanent insurance, but always consult financial advisor before proceeding.
Readers that found this article useful may also be interested in identifying the best credit card deal, discovering how effective credit card debt settlement is or finding out how to avoid identity theft.
Sources
Chura, Hillary. (September 23, 2006) "How much is enough in insuring a life?" The New York Times.
Disclaimer: This article in no way attempts to give legal or tax advice. One should consult a licensed attorney, tax advisor, or other qualified professional.
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