How Much Should You Be Paying For Life Insurance?

Many consumers, so knowledgeable when it comes to considering the costs of auto, medical, or homeowners’ insurance, are clueless when it comes to life insurance. Perhaps life insurance offers the additional psychological difficulty of having to plan for something you will never be able to experience. Regardless, in the words of Rory Roniger of the Louisiana-based Eustice Insurance Group, most people “go into [buying life insurance] half-cocked, with numbers they literally pull out of the sky.”

What are the numbers that you should be paying attention to, if you’re considering taking out a life insurance policy? The answer is, look at everything you own–specifically at all your financial assets. All existing money, as well as all sources of future income, are factors you should consider. This doesn’t just mean your salary. Consider any benefits you receive from your employer, any money market investment’s you’ve made, any savings accounts you own, as well as anything that’s collected in your IRA account.

There’s a conventional adage, to the effect that one must simply multiply one’s current yearly salary by four to calculate how much money one needs to be insured for after one’s death. As the previous paragraph’s list of possible assets suggests, this common adage is both limiting and inaccurate.

Instead of buying a policy for four times your income, try to build up your other investments–especially while you’re young. On the whole, a good investment portfolio is going to yield better returns than a life insurance policy. Your life insurance policy should be your “last line of defense” in case of your death–in addition to the other savings that you’d do well to have accumulated throughout your life.

That said, if you have people who depend on you financially to at least some extent, a certain amount of life insurance is generally a good idea. Life insurance provides these people with ready cash to deal with the immediate financial loss that will result from your death. Plus, if you’re not totally confident about the ultimate success of your other investments, life insurance provides your dependents with a convenient safety net.

When it comes to actually picking a policy, keep in mind that life insurance premiums these days vary more than they ever have. Furthermore, the low-cost policies cost less than they ever have. According to Byron Udell of AccuQuote, insurance premiums , on average, cost 60% less today than they did merely 7 years ago.

Today, the average 40-year-old man can buy a 20-year policy with initial premiums varying from as low as $27 to as high as $189. Often, the lower-premium policies have few real setbacks. In the words of Udell, “The middle of the pack is almost double what you need to be paying… [at the same time] plenty of companies in this level sell tons of life insurance.”

Always look into the history and legitimacy of the company of your choice. Also look into such factors as how quickly the company will process claims.