How is Life Insurance Calculated?
How much life insurance do you need? It depends on a number of factors, such as how much debt you have, how many people are dependent on your income, and how your loved ones would be affected if you were to pass away suddenly. There are two types of life insurance policies – term and permanent – and each has its own method of calculating the amount you’ll receive upon death. Here’s how they compare and which one might be right for you.
Is it based on your weight, height, or age?
In theory, life insurance is calculated based on your weight, height and age. In practice, those things are only used to calculate a rating factor that’s adjusted up or down depending on your health habits and family history. For example, if you smoke or have a family history of heart disease you’ll need to pay higher premiums. And if you’re an adult with cystic fibrosis or polycystic kidney disease, it might be hard to find a company willing to sell you coverage at all.
How about when you were 20 years old - was your rate different than when you were 40 years old?
Smoking has been a known risk factor for years, but just how much it lowers your life insurance rates depends on where you live. In Florida, for example, smokers pay only about 25 percent more than nonsmokers with comparable health risks. On the other hand, people who smoke in California can pay up to 300 percent more than nonsmokers with similar profiles. Why such drastic differences? Because of California’s Proposition 103, which regulates insurance rate calculations statewide; other states may have similar laws on their books.
Does smoking lower your rates?
Smoking and other lifestyle factors can change your insurance rate. Many life insurance companies now offer lower rates for people who are in good health and don’t smoke, which means that if you do smoke, it could actually increase your premiums. However, most policies also have a smoker-lapse clause, which allows you to go back to a non-smoker rate after several years of being tobacco-free. You should always ask about smoker-lapse clauses before purchasing any policy –– it could save you hundreds of dollars per year. So if you want to get a low quote on life insurance but are still a smoker, make sure you know how long you will have to be tobacco free before rates decrease.
Are health conditions taken into account (like diabetes, high blood pressure, etc.)Take a look at how life insurance has changed in recent years. For example, life insurance policies can now pay out in installments rather than as one lump sum. They’re also available on social networks, meaning that if you die your beneficiaries can be paid immediately and don’t have to wait for a check to arrive in their mailbox. Also: There are now more options available for people who want peace of mind but don't need full-fledged term or whole life coverage. Some companies are offering prepaid burial plans, annuities and funding accounts; many online services even let you create an irrevocable funeral trust so you have one less thing to worry about when dealing with end-of-life issues.
What does the future of life insurance look like and how can I take advantage of it?
The evolution of life insurance and retirement plans isn’t going to stop. In fact, with companies like Facebook and Google preparing for their IPOs, it’s only going to accelerate. So if you aren’t taking advantage of all that life insurance has to offer today, you could be seriously hurting your future self. Luckily, there are plenty of resources out there designed specifically for helping people who want to take a more active role in their financial future. If that sounds like you, then I strongly recommend diving into some investment planning books today and start familiarizing yourself with what awaits ahead in your financial future!