Life Insurance Coverage: Calculating Your Needs After 40

If you are calculating your life insurance needs after you turn forty, a standard method is to multiply your annual income by fifteen or twenty, depending on your debts, number of dependents and desired retirement age.

Overall, you want to represent the number of years your family would need your income if you were no longer present.

It’s important to factor in significant future expenses, such as children’s college funds, mortgage payments, or other outstanding debts.

Finding life insurance for individuals over forty with no medical exam requirements is becoming easier as new insurers enter the marketplace.

Medical exams can reveal information about your current health conditions, which can impact the cost of your monthly insurance premiums. Still, you should consider other important factors when considering life insurance policies after forty.

For example, you may need a policy that supports you during your lifetime, so it’s reassuring to know if you can borrow against life insurance policies after forty.

We’ll focus on the two main types of life insurance and how to calculate your life insurance needs.

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Understanding Different Types of Life Insurance

There are two basic types of life insurance. They are:

Term Life

Term life policies are not designed to last throughout your lifetime. With these policies, you pay a premium for a specific period (e.g., ten years, fifteen years).

If you pass away during that time, a death benefit is paid to your beneficiaries. If you outlive your term policy, you must apply for new coverage.

What happens if you miss premium payments after forty? You run the risk of terminating your policy and losing coverage.

Permanent Life

Permanent and whole of life insurance policies are designed to last your entire life. Throughout your policy, a portion of your premiums can build value in a cash value account tied to your policy.

This cash value can be used in many ways, including taking out loans against your policy during your lifetime.

Other Factors to Consider

When considering what type of life insurance you need and how to calculate the amount you want, consider these two factors:

The DIME Formula

‘DIME’ stands for ‘debt, income, mortgage, and education.’ These four significant factors serve as future expense considerations and earnings.

Here’s how each works:

• Debt: Total all of your debts (excluding your mortgage). On top of all of that, add around £7,000 for final expenses.
• Income: How much do you make per year, and how many years will your family rely on that money? Start by determining how many years until your youngest child graduates high school.
• Mortgage: Look at your last mortgage payment statement and its payoff amount, and add your second mortgage or home equity line of credit if applicable.
• Education: Add your anticipated college costs for each of your children–usually between £100,000 and £150,000 per child.

Add all these numbers together, and this is how much you should aim for with your life insurance.

Ten Times Your Income

Another simpler approach is multiplying your annual income by ten and adding the college/university fund costs for each child. 

Gain Insights and More with Insurance Hero

There are several other ways you can calculate your needs for life insurance, but it’s usually easier (and more accurate) when you work with an expert.

With Insurance Hero, you can quickly get fast, free, tailored life insurance policy comparisons from the UK’s leading providers. Contact us today to find a life insurance policy to support your beneficiaries.

Research Sources:

• https://www.barclays.co.uk/insurance/life-insurance/cover-calculator
• https://www.fca.org.uk/publication/financial-lives/fls-2022-general-insurance-protection.pdf