How to Use an Online Life Insurance Cost Calculator

Calculators: They’re great. Whether you’re using them to enter teenage information in elementary school or playing games with fancy graphing calculators in calculus class, they’re always there to help you…well, be lazy. (We’re also assuming they also help you add, subtract, and create sine wave plots.)

Either way, the life insurance calculator turns out to be both fun and useful, assuming your definition of fun includes making sure your loved ones are protected should something happen to you. But let’s focus on what’s useful: Taking a few minutes to use a life insurance calculator is the easiest way to help determine how much coverage you need and for how long, while also preventing you from overpaying for coverage you don’t need.

Let’s break it down.

How the Life Insurance Cost Calculator Works

Broadly speaking, life insurance works by allowing large numbers of people to pool their money into one insurance company. The life insurance company then manages the money and pays people a certain amount if the worst happens. To make this possible, insurance companies make actuarial calculations of how long people live.

It’s complicated, but luckily, you don’t have to worry about all of this. You simply care about what is right for you and your family based on your age, health and financial needs. This is where calculators come in.

In short, you will provide the calculator with some information about yourself that will help you estimate the amount of protection you may need. Using an online calculator, the answer is an estimate designed to guide your decision. When you apply, your final rate will be based on your application and third-party data obtained during your coverage period. Here are some of the things you need to provide:

• your gender
• your date of birth
• where you live
• Whether you smoke or use other nicotine-containing products
• An overall self-assessment of your health (fair, good, or excellent)
• your annual income
• the size of your family and the ages of your partner and/or children
• How much debt, if any, you have (including mortgages, student loans, etc.)

That’s it! Essentially, the calculator is designed to sort out the coverage you might need based on your financial situation, taking into account your family’s income, debts and living expenses, as well as the funds or coverage you already have (including any life insurance policies).

The calculator uses this to determine what’s known as the “coverage gap” — essentially, the total amount of life insurance coverage your family would need if an accident happened to you. With term life insurance, which gives you coverage for a specific period (the coverage period), the calculator can also determine how long you need to be covered.

These two numbers will be used to determine the coverage and length of coverage you might want to consider, such as a 30-year, $1 million term life insurance policy. (If you want to learn more about how much life insurance you need, check out our helpful article How much life insurance do I need?)

life insurance cost

according to A 2015 study by LIMRA — an organization that tracks such things — most people overestimate the cost of a term life insurance policy by 200% or even 300%. That means getting a policy may be cheaper than you think. That’s why term life insurance policies often appeal to those interested in affordability or buying coverage when you need it most, such as during a mortgage or while your kids are in college.

If you decide to purchase term life insurance, in order to determine the policy cost (life insurance rate), the calculator will consider the following factors:

your age

Because, obviously, the younger you are, the longer you’re likely to live, which means you can pay lower premiums for a longer period of time.

your health

The healthier you are, the less risk the life insurance company takes on and the lower your premiums will be paid.

How much coverage do you need

For the same person buying the same term (see below), more coverage equals higher premiums. It’s that simple.

your tenure

Typically, shorter term costs are lower than longer term costs – both overall and monthly. You’ll pay higher life insurance premiums over a longer term because it covers years when you’re older and likely to be in poorer health, meaning you’re a greater risk to the insurance company. (Learn how to choose the right life insurance by age.)

For example, a 35-year-old male in good health can purchase a 30-year, $500,000 Haven term policy issued by MassMutual for less than $42 a month. During this period, a 1-year-old will finish college and the insured will be nearing retirement.

Now suppose the same person in good health buys the same amount of coverage ($500,000), but only for 15 years. He will pay $15.66 a month for half the time. That would cover him through age 50 — which might be enough if he’s planning to retire early, his kids are older and close to financial independence, or if he’s about to pay off his mortgage.

Which Life Insurance Should You Buy?

Another factor that affects cost: what type of insurance you get. Everything we’ve discussed so far has been about term life insurance, but many people opt for permanent life insurance. A common type of permanent life insurance is whole life insurance. Unlike term life insurance, whole life insurance provides coverage for your entire life and includes a cash accumulation component, the cash value of the policy, which can grow over time.

This type of insurance is usually more complicated and more expensive than term life insurance and may require the help of a financial professional or life insurance agent to purchase.

Term life insurance is simpler than whole life insurance. You decide the coverage and duration you need. Your rate is determined based on the factors above. You pay by the deadline, and if something happens to you, your family benefits from your foresight.