Permanent Life Insurance - How Much Is Enough?

Anyone who wants to protect their family from financial hardship should consider buying life insurance. But if you want to ensure protection for the long term, permanent life insurance may be the right option.

While these types of policies can be expensive, the amount of coverage you need depends on your personal situation and goals. The following information will help you determine how much life insurance is enough for you.

How does permanent life insurance work?

Permanent life insurance is a type of whole-life policy that pays out a lump sum when the policyholder dies. With whole life policies, the hint is in the name. Your cover lasts for your entire life – providing you keep paying your monthly premium. Unlike other types of life insurance, the policy pays out regardless of when you die.

The amount you pay for your permanent life insurance depends on how much cover you need, and whether you have any add-ons, such as critical illness cover.

The good news is that premiums are fixed, which means you’ll pay the same amount each month for cover. Even as you get older or develop medical conditions, your premiums will still remain the same.

One downside is that permanent policies are often more expensive than traditional term life policies. This means you’ll likely spend more money over time. However, this extra cost could be worth it if you’re looking for lifetime protection.

Why choose permanent life insurance?

The need for permanent life policy depends on a number of factors. If you need life insurance coverage for yourself or others, then permanent life insurance might be best. This type of insurance provides a guaranteed death benefit to pay out benefits to beneficiaries upon your death.

A few typical goals that lead some people to permanent life insurance policies include:

To ensure lifelong life insurance protection
To fund a trust for your children
To provide income to your spouse after you die
To protect a mortgage
To cover funeral costs
To provide peace of mind

How much cover should I have?

Life insurance is designed to protect your loved ones in case something happens to you. But how much cover do you really need? Here are some things to consider when calculating how much life insurance you need.

What is your current financial situation?

The first step is to work out what your monthly income is. You’ll need to include everything – including your salary, pension contributions, interest payments, rent, council tax, utility bills, childcare costs and savings. If you’re self employed, you’ll need to add in your profits too.

Calculate your expenses

Next, calculate how much you spend each month. Include everything – from food, utility bills, household maintenance, travel costs, clothing, entertainment and any debt repayments. This will give you an insight into how much support your family will require on a monthly basis.

Determine your net worth

Finally, take into account your assets and liabilities. Assets include anything you own, like your home, car and investments. These are things your family could sell in order to fund themselves if they needed to.

Liabilities include debts such as mortgages, credit cards and loans. These are costs your family could struggle with if somewhere happened to you. For example, if they cannot afford mortgage payments, they may be forced to sell their home.

Then it’s just the case of choosing the right amount of cover. However, the more cover you have, the more expensive your premiums will be.

How much will my premiums be?

As already mentioned, permanent cover is typically more expensive than other types of life insurance. Premiums can vary depending on your age, gender, occupation and lifestyle. The higher your risk profile, the higher your premiums will be. It also depends on the amount of cover you need.

When you apply for life insurance, you’ll usually be asked some health and lifestyle questions. In other cases, you may be required to participate in a medical exam. This could be due to disclosing a pre-existing medical condition to your insurer.

There are a few ways to keep the cost of your premiums down:

Purchase cover at an early stage – Premiums tend to be more costly as you get older, therefore you can save money by buying cover when you are younger.
Quit smoking – Premiums are often more expensive for smokers due to the long-term health effects associated with smoking. However, many insurers will reduce your premiums once you have stayed smoke-free for over 12 months.
Compare quotes online – this allows you to compare quotes from different providers to find the best deals.
Opt for term life insurance – Unlike whole life insurance, term life policies last for a set period of time, as opposed to permanently. Yet because of this, premiums tend to be much cheaper. Therefore, if you’re looking for cover on a budget, term life insurance may be a better option.

As you can imagine, permanent life insurance policies aren’t cheap. But if you plan ahead and shop around, you can save plenty over the course of your lifetime. So, if you’re thinking about purchasing a permanent life insurance policy, head online to compare quotes from leading providers.