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Budgeting for an entire household can be challenging enough before even thinking about adding a life insurance policy into the mix.With life insurance, you want a policy that provides a safety net in case something catastrophic happens that prevents you from providing for your family. And you don’t want it to last just a year or two, but for the rest of your life, and afterwards -- that’s the whole point of an insurance payout. Yet it can become difficult to adequately budget how much life insurance coverage you need for the next several years (or decades); a typical life insurance policy of 20 to 30 years means having to budget for premiums to last the entire term.If you’re looking for life insurance for the first time, you may wonder how you’ll manage to squeeze it into your expenses along with everything else. Many people may pass on it thinking it’s too cost prohibitive, overestimating how much life insurance actually costs. Participants in a LIMRA survey, when asked how much a $250,000 term life insurance policy would cost for a healthy 30-year-old, estimated higher than four times the real cost.Their incorrect assumptions may prevent them from getting the coverage they need.But here’s the good news: life insurance is not expensive as you think, and there’s some level of protection that fits any budget. For the same healthy, 30-year-old male non-smoker, that $250,000, 20-year term life insurance policy should cost only an average $13 a month. Budgeting $20 to $50 per month can give you enough leverage to afford a policy without spreading your budget too thin.With that, follow some of these budgeting tips to make a life insurance policy easier for you:
"If you build a budget, the savings will come." That’s not really how the movie quote goes, but you get the idea -- with the right budget and financial changes in place, you’ll be in a better position to save money on your insurance rates.
The biggest step to implementing all the steps in this article is to build a budget to frame them. Any budget, whether it’s for basic household finances, paying down debt, or fitting in insurance payments, comes down to two main elements: knowing how much you earn, and how much you spend.Here’s how to start:
Pick your tools. A vague idea of a budget committed to memory isn’t as effective as a real budget documented in a spreadsheet, or on one of several budgeting/savings apps for your smartphone. Choose the format that you’re most comfortable using.
Determine your income. Not just your regular salary, but the money you have deposited in your savings or retirement accounts. Tally up your after-tax earnings to get the best, comprehensive image of the money you’ve got coming in.
Calculate your expenses. Next, list your regular expenses. They will include fixed, revolving monthly costs, like rent, mortgage, car payments, health or auto insurance bills, and variable expenses like groceries, gas, utilities, as well as discretionary expenses, such as dining out, vacations, or entertainment.
Your budget is ultimately a matter of tracking your spending and making sure it doesn’t exceed your earnings. Take some of the tips in this article to curb your spending, and you’ll stay in the black (and not the red). I’m a big fan of the 50/30/20 budget, which allocates 50 percent of your earnings to needs (housing, transportation, food, clothing, etc.), 30 percent to wants (your daily Starbucks fix, a cable TV subscription), and 20 percent to saving and paying down debt.
Buying too much insurance of any kind is a lot like borrowing more money in student loans than you need to pay your tuition: paying it all back can send you over budget when it’s not necessary.There’s a kind of misconception, in fact, that you need to buy as much life insurance as possible, so if you meet an untimely death, your spouse or children will get a gazillion-dollar payout. If your policy is big enough, they’ll be covered, but you’ve got to pay for those premiums while you’re living -- and that’s not financially sustainable when you’re bound to a budget.Overextending yourself and your budget for more insurance than you need can encourage an unhealthy case of debt. Less can be more. Choose the right amount of coverage for what you can afford in the present, but also for what your current needs are. If you’re single, you won’t need as much insurance as if you were married with one child or a larger family. If a family becomes part of your life someday, you can always modify your policy to reflect the change.How do you calculate the level of life insurance you’ll need? There are five major financial obligations to think about when calculating the amount of life insurance you can need, like college costs, childcare and dependent care, debt, end-of-life expenses and developing a financial cushion. This way, you can be sure to buy only the coverage you need - choosing a whole versus term policy - without putting undue strain on your budget.At first glance, whole or universal life insurance might seem like the more cost-conscious choice. The perceived savings comes in the form of a cash value component that can be withdrawn and invested for greater returns, leaving your family with more financial support.But it’s also costlier than a term life insurance policy (up to four times as much for a comparable death benefit), and not as budget friendly. The cash value portion can be deceiving, since it’s poised as a forced savings vehicle compelling policy holders to set aside cash when they might not otherwise do so, but there are also administrative fees, surrender fees and higher overall premiums that eat into those realized savings.Besides, a whole life policy goes against the idea of budgeting for your needs now -- you’re locking into a policy without thinking where you, your family or your financial situation will be in one year, three years or 30 years. Opting for a term life insurance policy gives you exactly what it says: cheaper coverage for one term at a time (usually between 10 to 30 years).A good piece of advice is to switch from whole to term life and invest elsewhere, as term life insurance is cheaper and life insurance isn't a good investment.
We spend way too much money on all sorts of indulgences. Eating out all the time, spending full price when out shopping, or getting a twice-daily $10 caffeine fix from Starbucks doesn’t just hurt your budget, it can decimate it completely.Start making some more frugal choices in your daily spending behaviors:
Brew your own coffee at home before heading off to work
Cook meals at home and cut dining out to once a week or every other week
Use coupon codes and look for discounts and sales, especially when grocery shopping
Compare labels and choose lower-priced generic over name brand products when possible
Buy in bulk -- larger quantities or larger sizes -- to minimize your shopping costs
Choose energy efficient appliances and be conscious of your energy usage to cut back on utility costs
Scale back your cable coverage, or cut the cord altogether; opt for Netflix or a streaming service with cheaper subscription fees
Take into consideration again that life insurance is cheaper than you might think. With some of the above small savings behaviors in place, and see how easy it is to add up to $13 per month, according to our original example. Skipping one of your weekly Starbucks runs can save you $5 to $10; looking for discounts at the supermarket can add up to $15 or $20 off your total bill; and switching out cable (average cost: $103/month!) for Netflix (about $10/month) gives you the cash leverage to put towards life insurance premium costs.
It’s more expensive for insurance providers to insure people who pose a greater health and mortality risk. Obesity, high blood pressure and diabetes are not only bad for your health, but bad for your rates; along with smoking, they can raise your premiums significantly!Lower rates, on the other hand, are offered to people who take care of themselves. We’re not even two months into 2017, so it’s not too late to take the steps to stop smoking, start exercising more, improve your diet, lose weight, and get into a better physical, mental and emotional frame of being.You’ll not only feel better and look better, but you’ll save money on your life insurance premiums, enabling you to buy the policy you need when you want it.By taking some of these measures into account, and making small lifestyle and budget changes, the right life insurance policy will do what it’s supposed to do: protect you while you’re busy living your life.
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