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For most people, life insurance is an important part of financial planning. It’s is a must for anyone who has someone relying on their income, from a partner to children to parents. It’s an easy and affordable way to always make sure your family will be protected.
If you’re new to life insurance, you’ll notice that there’s a lot to consider. There are several different types and many coverage amounts available, making for a lot of options. As you set out to find your first policy, there are three main things to keep in mind.
There are many types of life insurance, but term life insurance is the most practical and affordable
While shopping for life insurance, you’ll come across two main types of life insurance: whole life and term life. They’re far from similar in cost and function
Term life policies keep coverage in place for a set number of years, and are meant to cover you while you have young children, a mortgage, or other financial obligations. Whole life insurance is different — it offers a guaranteed payout when you die, but costs much more per month than term life insurance.
For most people, term life insurance policies are the most practical option. The average term life insurance policy is between five and nine times cheaper than a whole life policy, depending on age.
How much does life insurance cost? It’s cheaper the younger you are
If you know you’ll need life insurance in the future, getting it sooner rather than later is a smart move. While the average cost of a life insurance policy is about $44 per month, the price you pay will be different based on your age, sex, and amount of insurance.
Life insurance gets more expensive with age. According to data gathered by Business Insider, the average 30-year-old woman’s quote would be about $12 cheaper per month than the same term life policy for a 40-year old woman, and the typical man’s policy would cost about $17 less for a 30 year old than a 40 year old.
While it might seem like a small cost when divided monthly, it adds up over the cost of a typical 30-year term. The average man buying insurance at 40 would spend $6,170 more for coverage than someone who bought insurance at 30, and the average 40-year-old woman would spend $4,320 more on a term policy over all 30 years.
How much life insurance you need varies by person
The amount of life insurance you’ll need varies by your income, debts, expenses, and more. Generally, the more you make, the more insurance you need, and people in areas with high costs of living might need more, too.
Business Insider’s Tanza Loudenback calculated how much life insurance people need at many income levels across the US. She found that someone earning $60,000 in New York City would need $893,000 worth of life insurance, while someone earning the same income in Dallas would need about $471,000 worth of coverage.
There are a variety of ways to calculate life insurance, like calculating the amount based on your annual income. But, that’s not always enough — you never know what the future will hold. It’s also important to count on those things that are almost guaranteed to happen, like inflation.
A calculator can be a helpful tool for deciding this. There are many good calculators available online, including SmartAsset’s life insurance calculator, that can help you find out how much coverage you need easily.
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