Life insurance for 40-year-olds: Is it worth it? | finder.com

Life insurance for 40-year-olds

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Purchase a policy now to set your family up for a future of financial freedom.

You’ve hit your 40s, and that’s a milestone in more ways than one. You’re probably reaping the rewards of years spent climbing the corporate ladder. You might have people relying on your income, such as a spouse or children. You may own a business, or a sizeable portfolio of assets. All of these factors are financial obligations — and they’re worth protecting. That’s where a life insurance policy fits in.

Life insurance is a form of financial planning. Just like how a 401k or IRA sets you up for financial freedom in the future, life insurance gives your family and loved ones the same sense of security should you die. As a 40-year-old, it’s the perfect time to get coverage: You’re still young enough to qualify for good rates, and you likely have the funds and flexibility to buy the coverage you want. And if you already have a life insurance policy, it’s a good time to review your needs — you may have a higher income, more dependents or a change of life circumstances, such as a marriage or mortgage.

Of the 15 providers we’ve looked at…

Cheapest for a 40-year-old male with a $500,000 coverage policy

Protective Life
Cost: $28.38 / month

Pacific Life
Cost: $30.17 / month

John Hancock
Cost: $30.52 / month

Cheapest for a 40-year-old female with a $500,000 coverage policy

Protective Life
Cost: $24.94 / month

Banner Life
Cost: $25.49 / month

Principal Life
Cost: $25.81 / month

What is my risk of dying in the next five years?

You’ve reached the “big 4-0,” but the celebrating doesn’t stop there; you can expect to live a long life. According to our life expectancy data, for a healthy 40-year-old woman, the risk of dying in the next five years is 0.79%. For a man, it’s a little higher at 1.22%.

Those statistics are even better when you consider that in the US, a 65-year old man is likely to live until 84.3, while a woman can expect to live until the age of 86.6. These are averages — about a quarter of 65-year-olds will reach their 90th birthday and beyond.

Life insurance underwriting is complex, with many factors coming into play — but age is a constant. A healthy 40-year-old is not seen as too risky to insure. As you compare life insurance policies, you’ll realize that many providers offer low premiums and preferred rates to people in this age group.

Odds of dying for a 40-year-old

Within the next…MaleFemale
Year0.21%0.13%
5 years1.22%0.79%
10 years3.07%1.99%
20 years10.20%6.46%
30 years23.40%15.26%

Life expectancy rates are merely calculations based on averages of mortality among specific population, gender and age groups. They do not predict the specific life expectancy of any one person - including you. If you're concerned about your overall health and risks, talk to your doctor or health professional.

What is the typical cost of life insurance for 40-year-olds?

The rate you’re offered is the result of factors like your age, health, family history, occupation, lifestyle and whether or not you’ve gone down the no-exam route. It’s also a product of the provider’s underwriting guidelines; some life insurance carriers are lenient, while others have stringent standards. Either way, as a 40-year-old, you can still qualify for coverage at competitive — and maybe even preferred — rates.

For a 40-year-old man in perfect health, our research suggests the typical cost for $500,000 worth of coverage in a 20-year term policy is $33.31 a month. Over the course of the policy, this comes to $7,993.71, with an expected value of $50,989.06. For that same amount of coverage, the average cost is slightly lower for women at just $28.23 a month, totaling $6,775.71 over 20 years with an expected value of $32,304.32.

What is expected value and how is it determined?

The expected value (EV) of a life insurance policy is the anticipated value based on the odds that you’ll die and your death benefit will be paid out. You can find the expected value by multiplying the probability of you dying by the payout of the policy. If the expected value is higher than the total cost of the policy over the term length, then it may be considered a good investment. However, if the expected value is less than the total amount you’ll pay into the policy throughout the term, then you may want to look at other providers or alternatives to life insurance.

Let’s look at an example. Say you’re a 50-year-old nonsmoker who’s thinking about taking out a 20-year term life policy for $500,000 at $79.88 a month. As a man, you have a 20.97% chance of dying within the next 20 years, so you multiply that by $500,000 to get an expected value of $104,859.38. Since the total cost of your policy over 20 years adds up to $19,171.89 — less than the expected value — then your life insurance policy may be considered a good investment for the future.

What is the best life insurance policy for 40-year-olds?

There’s no one-size-fits-all answer. Everyone’s situation is unique, so the best policy for you is hinged on a few factors. Before you start seriously comparing providers and policies, think about why you’re buying life insurance, how long you need it and how it fits in with your financial plans. These insights will help you to decide on the type of coverage that suits you and make a more informed decision.

Typically, people in their early 40s opt for term life insurance, with the option to convert to a permanent policy later on. There is logic behind this. Precluding any major health issues, term policies are inexpensive — a 40-year-old nonsmoking man may be able to get $250,000 of coverage with a 20-year term life policy for just $17.85 a month. This premium is locked in, meaning it’s not affected by price surges as you age. Along with its attractive cost, term insurance offers a slew of benefits, including peace of mind and protection for your family in case you die. It also lasts for a set period of time. The average 40-year-old selects 20 or 30 years, which usually takes them up until the time they pay off their mortgage, retire or their kids graduate college. As a general rule, the younger your financially dependent family members are, the longer you’ll need coverage. So for example, if your kids are in middle school, look at a longer term.

People in their early 40s tend to go for policies that require a medical exam. They’re much cheaper and a secure option if you’re in good health. Keep in mind that if you have a heart condition, diabetes or a family history of cancer, some providers won’t be willing to insure you.

Most 40-year-olds view life insurance as one part of their financial plan. As such, they continue to contribute to their 401ks, 529 plans and IRAs, while putting money aside for term or permanent life insurance.

That’s the advantage of a convertible policy. It’s flexible, so if you want lifelong protection or to start treating life insurance as more of an investment, you can upgrade to a permanent policy. And if you don’t, that’s fine too.

The most common type of permanent life insurance is whole life, though you can also explore universal and variable universal life. All accumulate cash value over time.

The other option is to purchase a combination of term and permanent life insurance.

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How do I calculate my life insurance needs?

Life insurance is all about comfort. The premium should be affordable, and if you die, the death benefit should comfortably cover your beneficiaries. Generally, life insurance experts suggest a number between 5 and 10 times your annual salary, but potentially more if you have a family or other financial obligations.

When you’re determining your life insurance needs, think about what you pay for now and what you predict you’ll be paying for in the future.

Consider these factors:

  • Existing debt. Unfortunately, your debt doesn’t die with you — it gets transferred to your survivors, usually your parents or partner. To ensure they can settle your debt, take any loans you have into account, like mortgages, car loans and student loans.
  • Marriage. If you’re married or thinking about it, look at the financial obligations that come with tying the knot, such as the cost of the wedding, rent or a mortgage. Life insurance also protects your spouse and provides them with income should you die.
  • Spouse’s age and lifestyle. Speaking of spouses, think about your husband or wife’s age, health and lifestyle. The younger and healthier they are, the more coverage you’ll need. On the flipside, if they work or have a source of income, you may not need to buy as much coverage.
  • Children. As beautiful as they are, children are a huge financial responsibility. Whether you have them or are hoping to, a life insurance policy should give your kids the money they need to live when you’re gone.
  • Size of family. Add on extra coverage for each child.
  • College plans. Are your kids planning to go to college? That’s amazing — but it’s also expensive. When you’re running the numbers, factor in the cost of college.
  • Care. You may be covering medical expenses for a parent or paying for a nursing home. If so, consider those costs as part of your life insurance policy.
  • End-of-life expenses. Funerals aren’t cheap. To ease your family’s stress during that time, you might want to set aside some money to cover your funeral and burial costs.
  • Life insurance through work. Group insurance typically only offers a base level of protection, like $100,000, which can leave your family in a tight spot in the event of a tragedy. You might think about supplementing your policy.
  • Financial cushion. If you want to go above and beyond protecting your family, you can opt for higher coverage to give them a financial safety net. That way, they’ll have enough money to not only pay off your debts, but maintain or enhance their lifestyle. This is linked to leaving a legacy.
  • Business ownership. Do you have a business, or are you hoping to start one? A life insurance policy can give the company and its employees financial security in case something happens to you.
  • Other financial plans. Life insurance is meant to protect you and your family — not stress you out and send you broke. When you’re calculating your needs, consider any other savings you have, such as a 529 plan. And try to keep any retirement planning, like a 401k, separate from life insurance.

It’s easy to forget about life insurance, especially if your premiums are on autopay. Aim to reassess your coverage every few years and adjust it if your circumstances have changed.

Case study

By age 40, you’ve probably climbed the career ladder to earn a comfortable salary. If you’re trying to decide between two or more levels of life insurance protection, chances are there won’t be much of a price difference.

Let’s use a 40-year-old nonsmoking woman as an example. According to our research, a $250,000 policy with Protective Life, the cheapest provider, might cost her $15.27 a month. To boost her coverage to $500,000, that insurer tends to charge $24.94 — a price difference of less than $10 a month for twice the coverage. And to lift it to $1 million, she might pay $43.43 a month.

Bottom line

At 40, financial planning is probably at the forefront of your mind. If you have a family, business or financial assets, you may want to look into taking out a life insurance policy. It can protect all of those things, plus give your family or employees a sense of security for the future. Life insurance becomes more expensive as you age, but if you apply now, there’s a good chance you’ll be offered a low premium — and that rate stays the same until your policy expires.

As always, be sure to shop around to find the best life insurance policy for your needs.

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