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Life Insurance Choices Made Easy

photo: Whistling In The Dark

Life insurance is complicated and somewhat intimidating. The product offering names (term, whole, universal, etc.) are ambiguous. And how exactly do you measure the value of your life?

Coming to grips with the simple morbid reality that if a policy is actually used your life will have ended (and unexpectedly at that), is not an easy thing. As a result, many of those who should be insured are not (and in some cases, those who don’t need to be insured, are).

Wouldn’t it be great if you didn’t have to use the life insurance policy at all? It would, but that’s not the point of life insurance. Life insurance is meant to be a safeguard for loved ones who are dependent on your income. The one thing worse than passing on unexpectedly is passing on unexpectedly, and then having your loved ones face extreme financial hardship as a result. If you earn an income, your life has a financial value to your dependents.

Life Insurance Benefits

In addition to the critical benefit of providing financial peace of mind and a financial safeguard for your family, a life insurance policy — if you need it — has several benefits:

1. It’s cheap. Depending on your age and health, hundreds of thousands of dollars of term life insurance coverage can be purchased for the monthly price of a movie ticket, in many cases.

2. The younger you are, the cheaper it is. Premiums are extremely low for someone in their twenties or thirties and in good health.

3. In the case of a universal or whole life plan, you are essentially forced to save money. For someone who is not good at budgeting for savings, this can be a big benefit.

Still have questions about life insurance? We don’t blame you. As we said, it can be incredibly complicated. Here are, in a nutshell, some of the most important things to know in order to better understand life insurance.

* Term vs Whole

The two most common types of life insurance are term and whole. Term life insurance, as the name suggests, covers you for a predetermined period of time, typically 10, 15, 20 or 30 years. The shorter the term of the policy, the lower your premiums will be.

So-called permanent life insurance, on the other hand, does not expire: you are covered as long as you continue to pay your premiums. The most common type of permanent life insurance is whole life insurance. Unlike term life insurance, whole life has an in-built investing component: your premiums are higher, but over time you build a “cash value” that can be drawn upon.

Most commonly, whole life policies are recommended to older consumers (those 65 years old or younger) or as an estate planning tool for wealthy individuals.

* How are my rates determined? 

As we mentioned above, your age and the amount of coverage you want to purchase are the main factors that determine your premiums. The third big factor: your health. In order to purchase an individual policy, you will have to go through a health exam. If you are in perfect health, you will qualify for the lowest rates available, while those with chronic conditions or a family history of illnesses such as cancer or diabetes, for example, will have to pay more.

* Group vs Individual policies

You purchase an individual life insurance policy on the open market. Many employers, however, also offer life insurance as an employee benefit — in that case, you are talking about a group policy. This basically means that you don’t have to subject yourself to a health exam. Many employers offer coverage equal to two- to three times your salary for free, and often offer employees the option to purchase additional coverage. This may make sense for someone who is unable to find affordable individual coverage on the open market.

* Ways to save

 As mentioned above, the younger and healthier you are, the lower your life insurance rates will be. If you determine that you need life insurance — that is, you have a family, children and large secured debts (such as a mortgage) that your significant other would have to assume in the event of your untimely death — buy your coverage sooner rather than later.

If you can improve your health by changing your lifestyle, do it. Start exercising, if you don’t already. If you smoke, quit.

Last, but not least: shop around for the best rates. Thanks to the internet, shopping for life insurance these days is as easy as a couple of clicks.

The New Solution From Mint.com

With the aforementioned challenges in mind, Mint.com created a life insurance wizard to simplify the process of determining whether you need life insurance, what kind of policy makes sense for you, how much coverage you need — and who might offer you the most attractive rates.

How to Use the Life Insurance Wizard: 4 Simple Questions

You can find Mint’s life insurance wizard here. Then, it’s as easy as answering four simple questions:

1. How old are you? The answer to this question will determine the length and type of policy you need. A 20- or 30-year old will need a 30-year term policy, while a 40-year old might be better of with a 20-year term policy.

2. What’s your annual income? A range of 5-10x your annual salary is recommended for life insurance coverage for anyone who has dependents and a mortgage.

3. Do you own a home? If not, the recommended coverage amount you need for insurance will be lower

4. Do you have any dependents? If not, the recommended coverage amount you need will be lower — or you may not need life insurance at all.